The past 12 months have proved a torrid time for most AIM companies. The market’s benchmark indices – the AIM All Share, AIM UK 50 and AIM 100 – have suffered significant falls, dropping 55 per cent to 823.4, 25 per cent to 4251.5 and 25 per cent to 4216.4 respectively.

Research conducted by Growth Company Investor has unearthed the fact that 28 companies have shed more than 90 per cent of their value over the past 12 months. A staggering 58 ventures have lost 80 per cent of their value or more, while a plethora of companies have suffered annual share price reversals of at least 70 per cent.

Needless to say, many of these falls are merited, reflecting woeful trading, serial profits alerts, funding crises or exposure to the worst hit sectors as the downturn bites in earnest. Companies encountering such problems should not be surprised by the decimations of their market values. To illustrate, the woes of electric vehicles maker Tanfield relate to its warning on profits and curtailing of growth plans, while one-time market darling Myhome International has panicked investors with a breached banking covenant and a slowdown in selling franchises.

Investors have cashed in chips on Betbrokers, the sports betting clearing house, after trading problems forced a serious pare back of forecasts, while the number one faller is the disaster hit hedge fund manager Absolute Capital Management, which tops our table with a valuation reduction of more than 99 per cent.

However, for many of the companies in the table, cases can be made for market falls having been substantially overdone.

Oversold stars
Among the fallers are a number of fundamentally sound businesses, oversold stars and turnaround situations to which the wider market has yet to cotton on. The ranks are also littered with a number of property-related ventures whose shares have fallen on negative sector sentiment, even though the companies themselves are trading fairly well.

Directors have been buying shares in two property sector plays of late, including Telford Homes, the residential developer focused on East London, which has seen its shares slump by 70 per cent to 100p as conditions go from bad to worse in the wider housing market. However, the derating of its shares ignores the fact that the company operates in a part of London undergoing regeneration ahead of the 2012 Olympics and where a large amount of committed spend is headed – Telford is well known for its regeneration projects and its strong links with affordable housing providers. Moreover, the company claims a robust business model, in which it de-risks through preselling homes.

In a recent update, chief executive Andrew Wiseman, keen to keep a tight rein on cash and flagging up strong support from the group’s banks, said the company had continued to complete apartment sales in a worsening market, albeit at a slower rate.

Telford also has a strong recent track record, having served up a 31 per cent pre-tax increase to £17.7 million from turnover lifted almost 55 per cent to £160.4 million for the year to March – the total dividend was increased from 8.9p to 10p per share.

Insulation from Inland
Brownfield property developer Inland is off 74 per cent at 13p on investor worries regarding the state of the UK housing market. However, this ignores the flexibility the company has in terms of its brownfield portfolio – sites are bought up and value-enhanced through planning permissions – since the company can also target non-residential usage by directing sales towards hotel groups, public sector buyers and housing associations.

Forthcoming results for the year to June will meet market expectations, following the successful disposal of five sites in the last quarter, and the company remains confident in its ability to create value from the portfolio. Furthermore, its focus exclusively on the South East, where property values are likely to remain a lot more stable, offers a degree of insulation.

Davenham – falls overdone
Falls in many other ventures also look seriously overcooked. Led by astute chief executive David Coates, Davenham has dropped 71 per cent this past year to 97.5p – which compares with a 2005 issue price of 254p – on worries about the asset-based lender’s exposure to the under-fire UK SME sector.

At first glance, perhaps this isn’t the best market to be lending to in current economic climes, and Coates readily admits that recent trading has been more challenging. However, he says that full-year results for the year to June – out next month – will meet market forecasts, reflecting the strict lending risk controls built into the business over recent years by the board, as well as a more cautious approach to loan growth, especially in its property division. Moreover, the company continues to benefit from strong demand for its asset and trade finance products, as the credit crunch clearing banks remain more cautious in these areas.

Last year, Davenham grew profits by 17 per cent to £12.1 million and, based on forecasts in the market for June 08 (profits of £13.3 million, 37p of earnings and a 16.9p dividend), the shares look dirt cheap on a price-to-earnings ratio of 2.6, while offering a yield of more than 17 per cent. While acknowledging the macro background, that looks a silly valuation.

Theo keeps its sparkle
Luxury brand play Theo Fennell – named after the designer to the stars, who remains involved as an ambassador and consultant – has been sold down by more than 70 per cent to 38.5p, with the market worried about the effect of the downturn on consumer appetite for its high-quality jewellery and watches.

Nevertheless, financials for another record year to March were impressive, with turnover increasing from £25.4 million to £28.1 million and pre-exceptional pre-tax profits sparkling at £1.9 million, a 16 per cent increase year on year. Given its brand strength, international expansion opportunities, recent record and robust finances (year-end net cash of £945,000 and unused bank facilities of £5 million) the company can consider itself unlucky to have seen its shares lose their sparkle.

Potential for bad news in the software and technology space has been more than priced in at Cheltenham-based support and training business Pennant International, which punches above its weight with clients including defence and aerospace giants such as BAE Systems and the Ministry of Defence. Shares in this £2.5 million cap minnow have fallen back by 74 per cent to 8.25p, despite recent positive pronouncements from the company, which recorded substantial increases in sales, operating profits, earnings and dividends in the year to last December. Based on historic earnings alone of 3.2p, the shares are trading on a historic multiple of less than 2.6 times.

Turnaround potential
A spate of director buying, including purchases at 20p by CEO Andrew Fickling and finance director Andrew Fletcher, indicates a likely valuation anomaly at Sport Media Group, the company behind the Sunday Sport and Daily Sport newspapers and supplier of saucy content for mobiles and the internet.

Shares in the acquisitively transformed company – Sport Newspapers reversed into AIM-quoted Interactive World last year – have slipped almost 80 per cent to 16.75p, not helped by a trading update twinned with interim figures in which questions were raised about the company’s ability to hit full-year numbers, given a delayed relaunch of the Daily Sport and a more cautious view on growth.

Nevertheless, interims to January were awash with positives, including 180 per cent acquisition-driven top line growth to £14.4 million and a 48 per cent rise in underlying pre-tax profit to £3.2 million. Based on a full-year earnings forecast of 4.89p and 4p dividend, the shares look oversold on a prospective multiple of 3.4, even after recent disappointments. A yield approaching 24 per cent means this is a fantastic entry level for investors.

A turnaround appears to be successfully in train at optical fibre-based lasers group SPI, which has had its fair share of disappointments since joining AIM in late 2005 at 144p. At 30p, the shares have shed 87 per cent of their value.

Having disappointed investors with technical issues and tapped them for further funding, SPI now appears to have its beams back on growth, especially in Asia, and has lately cheered investors with contract wins and a trading update, ahead of September’s interim results.

The company, which is based in Southampton, reported a strong first-half financial performance across the board, highlighting good levels of repeat business for its pulsed laser products and expanding gross margins.

Claimar – ripe for a rating
Careful examination of our table reveals an array of businesses that might put forward arguments that a rerating is overdue. Domiciliary care company Claimar Care – a former Company Profile pick at 76.5p and subsequent AIM market star turn – has seen its share price slump to a bombed-out 8.5p. Bears moved in after the acquisitive company revealed a slip into the red at the interim following a ‘challenging and disappointing’ first half to March, also warning that September 2008 earnings would ‘materially’ disappoint, despite annual sales and profits growing year on year, with delays to certain complex care contracts among the factors given for its trading issues.

Yet this company will come again and is anything but decrepit, having diversified its service range and being nicely positioned to grow in markets linked to the ageing population and the rising number of people choosing to be cared for at home. Chief executive Mark Hales recently upped his stake in the company – which trades on a miniscule multiple of 1.3 times last year’s 6.25p of earnings – to 16.5 per cent, snapping up 2.95 million shares at 14p.