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Following the revival in the software sector this past year or so, finding value stocks amongst the smaller players is becoming increasingly difficult, unless, of course, you are willing to take on above-average risk

Steering a troubled company back to life after years of underperformance can do wonders for the reputation of all those involved – witness the plaudits pouring in at AIT and Patsystems following their journey back to profits under the guardianship of Nicholas Randall and Kevin Ashby respectively.

For many other CEOs though, the path back to respectability for their ventures has been an arduous trudge and, while the shares of these may hint at 'bargain basement' prices, you need to bear in mind that there is often little guarantee that the intended turnaround will ever be fully achieved.

IE still to make breakthrough

Financial transaction-focused IT business Intelligent Environments is among those to have found the going extremely tough. Once valued at more than £150 million, the company hit a wall in 2001, with losses rising to £7 million and sales collapsing from £8.8 million the previous year to just £3.1 million. The board changed, institutional support was found and a series of fundraisings were arranged. For all this, though, IE has yet to fully recover and – after falling £200,000 short of an anticipated breakeven position for the year to December – its shares have slumped to their lowest levels in 12 months.

Unperturbed, house broker Bridgewell forecasts a £440,000 operating profit for the current full year and tips sales to rise 30 per cent to £4.6 million during the period. Should September's interims show progress towards this target, the shares should spike in the short-term. However, you need to bear in mind that IE has failed to deliver in the past. If you're risk hungry it might be worth a whirl. But others should steer clear.

VI appeals to punters

Perhaps a more alluring value punt at present is computer-aided-design business VI Group.

This company slumped from annual profits of £726,000 to a £1.3 million loss within just 24 months. But full year figures to December did offer some cause for optimism, with management opting to take an exceptional £789,000 hit against financing and acquisition costs and deciding to cancel the company's somewhat obscure US-market listing. Moreover, although market conditions remained tough, the company still managed to increase revenues by 18 per cent to £8.9 million.

Encouragingly, first quarter figures showed solid subsequent progress with sales increasing 27 per cent to £2.6 million during the six months to March and a £272,000 loss being transformed into a £33,000 pre-tax profit. Should VI then go on to match expectations of a £400,000 profit and 0.5p of earnings for 2004, and a £1 million profit and 2p of earnings in 2005, the shares, which currently change hands for just 12p, may rise rapidly.

Torex Retail one to watch

Though by no means a turnaround, recent AIM arrival Torex Retail is another facing the daunting task of changing public opinion, so maiden interims from the retail technology specialist – due out in September – are not to be missed.

Deemed surplus to requirements by former parent company Torex, following its merger with health-sector focused IT business iSoft in late 2003, the company's share price has drifted down steadily in recent months and currently resides at just 54.5p. This represents a record trading low in Torex Retail's, admittedly brief, AIM history.

But while the shares have flagged, the signs in general continue to look good and an early July trading update confirmed that sales continue to roll in and that the board expects September's interims to be 'consistent with full year expectations'. Lorne Daniel from house broker Evolution Beeson Gregory anticipates a £10.2 million profit and 4.3p of earnings from £69.3 million of revenue for the year to December, giving a prospective p/e of 12.7 for 2004, dropping to just 10.5 for 2005.

As Baird analyst Ian Spence notes, people are still a bit sceptical – principally because the business was not a particularly high priority for its former parent. Nonetheless, it looks relatively undervalued at present.