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Investor apathy towards small-caps speaks for some of the negative feeling towards the sector, while a history of over-fragmentation, cut-throat competition and a litany of profit warnings covers the rest.

A cursory look at select share prices speaks volumes: Quadnetics trades at 147p, down from a 52-week high of 377.5p, despite healthy underlying profitability and a strong pipeline of orders, with a recent earnings alert hitting its valuation. Growing homeland security group Croma Group is valued at only £6.2 million (at 3.5p per share) despite positive recent progress at its three profitable subsidiaries, while, perhaps understandably, perennial disappointer Image Scan trades at just 5p, down from a 52-week peak of 26p.

Secure long-term earnings
Since floating on AIM in 2002, security solutions venture SectorGuard has failed to set the world alight – its shares languish at 2.62p, valuing the company at less than £10.4 million. Undeterred, no-nonsense chief executive David Marks has continued to drive year-on-year sales growth, organically and through acquisitions that have increased the scale and geographic reach of the business, which has remained profitable despite considerable recent investment spend.

Marks has built a business with operations spanning asset protection, fire and security systems, response services and manned guarding, a part of the business boosted by the recent acquisition of rival ManGuard.

I recently found Marks in buoyant mood in the wake of a tie-up taking the company into the top 15 UK manned guarding groups by turnover and bringing with it considerable new business and cross-selling upside across a broad base of blue-chip clients.

He hopes this strategically compelling deal will finally make the market sit up and take notice of SectorGuard, growing in strength in a market where drivers include crime and the terror threat. Long term, I like the look of this business, which boasts good earnings visibility through its excellent client retention levels and a high number of long-term contracts.

Blinding sales growth
Far more speculative, but one to set the pulse racing, is security blinds and emergency lighting outfit Eruma, which floated on AIM in 2005 with little fanfare. Chief executive Wayne Money concedes most AIM investors don’t know much about his micro-cap venture, whose market value is a modest £7.2 million.

I can’t do its innovative products justice in this column; suffice to say, the company has patented a unique security blind that can not only frustrate burglars to the point of insanity but also offers protection against terrorist attack.

Having passed stringent bomb-blast tests carried out by the Home Office, the product is capable of withstanding a blast from a 1,000 Ib car bomb.

Elsewhere, tightened UK and European legislation requiring public buildings to have emergency lighting (which must be tested monthly and annually) is driving prospects for the ‘intelligent’, low-cost and low-carbon-footprint lighting product Eruma acquired a year ago. Sales from a UK distribution deal for the product with Philips are expected to top £1 million in year one.

Admittedly still loss-making and filling its coffers with a £500,000 December placing, sales are on a growth tear, having risen by more than 300 per cent to £510,000 in the half to June 2007.

I’ll freely admit, a company of this size is risky fare, but I like Eruma as an ‘ethical investment’ underpinned by strong market drivers, and the enthusiasm of Mr Money is infectious. At 6.12p per share, modestly above the 5p issue price, the company could prove an intelligent punt for the bold.