I recently chatted to two smaller companies ready for troubled times, each profiting from the impact on the banking sector.

iE – still an intelligent bet
Tough times for retail banks, as well as the consumer, are throwing opportunities the way of Intelligent Environments, recommended here a year ago at 9.38p. Today, priced at 7.38p, iE’s market value is far too modest at £12.1 million.

Led by energetic CEO
Phill Blundell, Intelligent Environments provides online software products for the likes of HBOS, HSBC, Barclaycard and of late has extended its product offering beyond credit card applications to include loans and savings products.

Its technology, which centres around online applications and account management, helps financial services giants reduce costs, generate revenue and improve customer service, all areas of focus in a downturn.

‘We are facing the internet,’ Blundell informs me, ‘and in these tough times, the banks are investing in the internet, rather than traditional channels. Tightening in the consumer market is also playing into our hands, because retailers are becoming more cute in the promotion of their store cards and credit cards.’

Talking me through Intelligent Environment’s trading missive covering the half to June, Blundell said operating profits increased ‘materially’ year on year, with high-margin recurring royalties growing substantially. Lower sales reflected a drop in low-margin service work. Having closing net cash a shade over £1 million added to the feel good factor, while Blundell expects further profits improvement in the second half. All in all, 2008’s figures will be well ahead of last year with analysts looking for £1 million pre-tax, ahead of

£1.7 million for 2009.
Intelligent Environments looks an intelligent bet, because now more than ever, banks
need to maximise returns on their tech spend and the web is the way they’ll do it, while retailers need to come up with ever more creative ways of capturing consumer’s constrained spend.

1pm – time to take a look
A turnaround twinned with a timely credit crunch story is how I see asset finance minnow 1pm, valued at just £1.4 million at 0.32p. Now being nurtured by industry mover and shaker and chairman Mike Johnson, 1pm, brought to market in 2006, exited the sub-prime market last year, turning its attentions instead to the small-ticket leasing market.

A return to profit for the half to November demonstrated the success of the focus on providing funding for small companies needing to purchase business-critical equipment. Figures for the year to May caught my eye, revealing a swing from losses of £224,000 to pre-tax profits approaching £80,000, from a top line £848,000 (2007: £872,000), reflecting burgeoning business levels as well as a tighter underwriting policy.

Eyeing opportunity in a £5 billion addressable market, Johnson insists restricted credit in the banking world is creating work for 1pm. This is because the big banks are tightening up on lending terms, if they are lending at all, leaving smaller companies without a funding source and creating a gap that can be filled by 1pm.

Now I’ll admit that any company of this size comes with a large degree of risk, but for the bolder investor looking for a high risk, high reward play, this a prime time to examine 1pm’s prospects.