Recent stock market falls have left a severe dent in the market capitalisations of London’s listed companies, but it is among the smaller company sector where the ravages of the current bear market have been particularly keenly felt.

Growth Company Investor’s recent Spotlight on AIM research report threw up the surprising statistic that half of all AIM ventures were valued at below £20 million. That, coupled with the stalling IPO pipeline, means that now is a terrific time for investors to focus on those existing AIM companies whose valuations fail to reflect their proven profits, financial track records or growth prospects.

Win to triumph on wider focus
One such gem is mobile telecoms facilitator Win, whose prospects have lately been transformed by the widening of its focus from the delivery of text message alerts to the provision of a whole range of services and content for mobile networks. Presently capitalised at just £14.3 million based on a share price of 141.5p, the company’s customers are corporate heavyweights such as Vodafone, T-Mobile, the BBC, News International, E.ON and BAA. Moreover, as the wider penetration of broadband has enabled internet phenomena such as YouTube and MySpace to develop ever more exciting and complicated applications, so a similar increase in technology is expected in mobile communications, with new handsets such as the Apple iPhone able to handle sophisticated content.

To make sure the company capitalises on all of this, chief executive Graham Rivers has enjoyed a frenetic 18 months, overseeing three small yet strategically key acquisitions for a total of £1.8 million and signing some exciting new contracts. The new additions were October purchase Quattrocomm, manager of mobile portals for a range of European networks, whose skill set enabled Win to add an impressive contract to handle media behemoth AOL’s entire UK content portal; November acquisition Popimedia, which enables media owners to incorporate video and photos from their viewers; and Pocket Group, purchased after Win’s December year-end, which provides music content to clients including Sony Ericsson.

Having diversified its customer base away from its traditional UK heartland and into Europe and Asia, cash-generative Win is poised for some serious growth, with independent broker Charles Stanley suggesting it can advance earnings from last year’s 10.99p to 16.71p in 2008 and 20.4p in 2009. Miserly forward price-to-earnings (p/e) multiples of 8.5 and 6.9 fail to reflect its clear growth potential, and investors could benefit from a rerating.

Mobile for growth
Another underrated counter offering a strong path to growth is Mobile Doctors, capitalised at less than £10 million. Operating at the intersection of the medical and legal professions, the company has grown quickly over the past 18 months from an initial two doctors to a current network of 2,500 medical experts across the UK. Mobile Doctors debuted on AIM last July in order to accelerate expansion. A first acquisition was effected in December, and founder chief executive Matthew Game says further deals are in the pipeline.

Mobile Doctors’ core service is the supply of independent medical evidence for lawyers and insurers engaged in personal injury claims, ranging from road accidents to professional negligence cases. Ancillary services include the organisation of MRI scans and X-rays, as well as aftercare such as hospital treatment and physiotherapy.

While the UK is far less litigious than the US, its personal injury claims market is growing fast. The number of accident claims rose by 8.3 per cent in 2006/07 and is predicted by market research body Datamonitor to burgeon further in coming years, driven mostly by motor accidents. ‘It is quite a crowded market,’ says Game, ‘and we feel it offers a great opportunity for consolidation.’ He plans to more than double the group’s market share by completing one or two more acquisitions, hinting that the next deal will be ‘significantly larger’ than December’s takeover. As Mobile Doctors increases in size, economies of scale should result.

Recent newsflow has been healthy, with annual results to last November revealing a swing to profits of £835,000, before tax and one-off costs. A month later, Mobile Doctors announced two sizeable contracts – one with an unnamed leading law firm, the other with an arm of personal insurance intermediary group BGL, which handles claims for more than 3.5 million policyholders each year. Game predicts that the total net value of these contracts for the company could be around £10 million during the next two and a half years.

House broker Daniel Stewart had upgraded earnings estimates for the current year from 6.6p to 7p even before recent contract wins, meaning the 60p shares are changing hands for just 8.6 times this year’s expected earnings. Expanding, growing earnings swiftly and offering a defensive investment bent, Mobile Doctors
looks a good long-term buy.

Belgravium’s bargain appeal
Handheld computer-maker Belgravium Technologies is a long-time inhabitant of the sub-£20 million club, despite being well run, cash generative and offering investors both growth and income. Its failure to break out of this lowly valuation band perhaps reflects a somewhat stuttering progression. In the years since its transformation from engineer Eadie in 2001, revenues have mounted steadily from £4.5 million to last year’s £10.6 million.

However, a brace of acquisitions in 2006 boosted its prospects and helped drive profits and earnings per share up 11 per cent last year, to £2.1 million and 1.4p respectively. This growth seems at odds with the recent price underperformance, with the shares having fallen from 16.75p to 9.38p. The drop mostly reflects a slight sales slide during the past year, with economic uncertainty affecting decision-making by certain customers.

Despite all this, Belgravium boasts a strong track record of paying out progressive dividends, and executive chairman John Kembery assures the market that the order pipeline is bulging. On analysts’ forecasts of a 0.55p payout for 2008, the shares offer a prospective yield of almost six per cent, while the prospective earnings multiple is only
six times, based on a modest projected earnings increase to 1.53p.

Intriguing sub-£20 million plays
Other intriguing businesses priced at sub-£20 million include steam-cleaning and coatings technology group Proventec, which recently secured a potentially highly lucrative 14-month tender (with the option for a one-year extension) to provide steam-cleaning equipment to the NHS, as part of the battle against hospital-acquired infections.

Results for the half to September were highly encouraging, revealing a fourfold revenue rise to £5.8 million and a threefold profits surge to £391,000. With analysts pencilling in 40 per cent profits growth for the current year, the 7.25p shares could rise in more favourable markets.

Satellite phone reseller SatCom, whose business is the redistribution of mobile satellite airtime to users that cannot rely on the usual cellular networks for coverage – governments, aid organisations, oil and gas companies, shipping companies, etc – has increased market share and margin through select acquisitions in recent years.
Growing into an operator of some significance – in the last half-year it has gained accreditation as a voice and data services distribution partner for Inmarsat – the company is forecast to transmit profits of $5.6 million (£2.8 million) and
the equivalent of 3.4p of earnings in the current year to June, giving the 31p shares a value look, on a p/e of nine.

Fountains’ £900 million potential
More solid and visible growth is on offer at the upper boundary of the sub-£20 million bracket, where environmental support services group Fountains has effected a dramatic turnaround under chief executive Richard Haddon, who took over the hot seat in May 2006.

Figures for the year to September showed a swing from losses of £1.6 million to profits of £1.9 million, from which Fountains paid out a 2.5p dividend. Haddon has refocused the business around a ‘managed services’ approach, forging into new markets, gunning for larger contracts and reducing dependence on rail contracts. By increasing the array of services it offers, Fountains has dramatically boosted its bidding pipeline – from £500 million to £900 million over the six months to November – while its latest reported confirmed order book stood at almost £100 million.

With Haddon focused on profitable growth and delivering shareholder value, broker Collins Stewart forecasts 11.5p of earnings this year and 14.2p by 2010, placing the 135p shares on a p/e of less than ten times for 2010.

Turnaround, bright eyes
Other, more speculative turnaround situations include £4.3 million Australian minnow CustomVis, which came to market in 2003 with revolutionary laser eye technology. The shares in the business were bombed-out way before recent market turmoil, collapsing from a 91p issue price to 4.88p, with the company finding market acceptance of its technology slow while bearing the costs of gearing up manufacturing.

Now supporters say things are looking up, with facilities in place to churn out all the lasers the market demands. Forthcoming interim results will reveal whether or not management has hit its target of selling three machines per month, while the recent purchase of £190,000 worth of shares by Fidelity’s International Small Cap Fund, upping its stake to more than 8.8 per cent, demonstrates their optimism.

An even more diminutive venture, valued at just £5.1 million, is NewmarketInvestments, which claims to have a series of potential deals and innovations on the way after its arduously achieved £850,000 shares-and-cash acquisition of International Racing Bureau. Newmarket, which owns equestrian bloodstock agency BBA as well as an associated insurance operation, sees this recent deal as helping to restore some lustre to its tainted investment story, with management now aiming to gain momentum.

Another touted turnaround
looks to be under way at Californian winemaker Cosentino Signature Wines, where founder Larry Soldinger has regained control. He has quickly made a significant difference, as annual 2007 results showed the reversal of a massive $18.5 million (£9.2 million) loss to a small $315,353 profit.