Private & Commercial Finance, which principally provides finance to consumers wanting to purchase cars, has warned that sales in the second half of the year were lower than the level recorded in the first half. Initially this sent the shares down 18 per cent to 52p, but they have since recovered to 57.5p. Growth Company Investor first recommended PCF at 55p in June 2001. Shareholders should keep holding despite this setback.

John Beddoe, analyst at house broker Seymour Pierce, has retained his prediction that the group will make a £1.7 million pre-tax profit in the year to the end of December. He points out that PCF's 'solid' management, led by the able chief executive Tony Nelson, are not going to chase business in order to increase volumes – a strategy Beddoe applauds.

Beddoe says other larger finance house are now entering PCF's space and attempting to compete on price. However, he is assured by the company that it wants to retain its healthy operating margins at the present attractive level and not compromise the loans it makes by taking on more risky clients, who are more likely to default. He says the fact that the group has already built up a safe £70 million loan book is reassuring.

Craig Cowan, an analyst at Brown Shipley, which acts as PCF's nominated adviser, concurs with Beddoe's view. Nevertheless he only reckons the company will make a £1.6 million pre-tax profit this year, 16 per cent lower than his previous forecast of £1.9 million. This will come about because Cowan believes full-year sales will now come in at £31 million, unchanged from last year.

Chief executive Nelson does believe that the current tough economic environment may mean a series of consolidations could occur in the sector. Any bidder must reckon a company of PCF's quality represents a relative bargain at the stock's present price. Seymour Pierce's prediction of 6.7p of earnings per share on an undiluted basis in 2002, with which Beddoe is 'comfortable', puts the shares on a prospective P/E of 8.6.

Earlier this year the shares hit 86.5p. They could easily return to those levels as soon as economic confidence recovers.

Recommendation price: 55p

Share price: 57.5p

Market value: £8.6m

Sector: Speciality and other finance

Market: Aim

Recommendation: Hold