Companies: DAV   

Asset-based lender Davenham, brought to AIM back in 2005 at 254p and originally recommended by Growth Company Investor at 365.5p, has suffered a dramatic recent share price fall on worries about its exposure to the under-fire UK SME sector.

This isn’t the most appealing market to be lending to given the current market malaise, and astute chief executive David Coates readily admits that recent trading has been more challenging. However, he says full year results for the year to June – due for release in September – will meet market forecasts, reflecting the strict lending risk controls built into the business over recent years as well as a recent more cautious approach to loan growth, particularly in the property division, put in place last autumn.

Coates insists the company continues to benefit from strong demand for its asset and trade finance products, as the credit crunch hit clearing banks remain more cautious in these areas.

We think Davenham should be given more credit for its track record, having grown profits by 17% to £12.1m last year. Based on forecasts in the market for June – profits of £13.3m, 37p of earnings and a 16.9p dividend – the shares look substantially oversold on a p/e of 2.7.

Considering the shares yield 17% on those numbers, there is little sense in selling if you’ve yet to do so by now. Buy/hold.

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Davenham	AIM	£3.78m	14.50p	-0.25p
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