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The lower reaches of the FTSE may have a reputation as a company graveyard, but there are occasional treasures and acorns buried among the bodies. Simon Keane introduces the final part of Shares’ Full FTSE Review, in which the team searches the depths for pearls and the mighty oaks of the future

It’s like the Bermuda Triangle of the London Stock Exchange (LSE). Companies go into it to disappear quietly, while those that eventually make it out were lost so long no-one knows what they do. We are of course talking about the FTSE Fledgling index, that twilight zone in between the full public glare of the FTSE All Share and the complete obscurity of the LSE’s non-indexed lower reaches.

Not much is known about the Fledgling because institutional investors are not interested in it. They are the ones who pay for the analyst research, but many of these companies are too small and illiquid (smallest constituent World Trade Systems, market cap of £400,000) to be anywhere near the fund managers’ radar.

But lack of coverage does mean that private investors willing to do their own leg work can unearth some pretty spectacular performers. Take a look at REA Holdings (RE.), which in December 2006 sailed out of the Fledgling and into the FTSE Small Cap part-way through a recovery whereby its shares doubled in under two years to today’s 600p.

The owner of Palm oil plantations in Indonesia, REA had lingered in the Fledgling index for years. A relic of a bygone era, the company was established in 1906, set up to run rubber plantations in Malaysia and Indonesia during the colonial days. Rubber prices collapsed in the 1930s, but now rocketing palm oil prices mean REA is undergoing a comeback.

It may look like cheating to choose a FTSE Small Cap stock to illustrate the possibilities of the Fledgling, but it has to be remembered that the moment a Fledgling company starts performing it almost always gets promoted. Promotion happens at FTSE Group’s annual review in December and is a pass into the All Share: first stop – FTSE Small Cap.

Graveyard stories

The universe that is the Fledging is a small one comprising about 150 stocks and littered with disaster stories, there are plenty of zombie companies down here that should have died years ago. It’s not like the lower reaches of Aim, for instance, where there are many early-stage and fast-growing business perhaps only recently come to market. A good proportion of Fledgling members are FTSE All Share failures.

Notable examples of fallen stars include engineer Jarvis (JRVS), whose culpability in the 2002 Potters Bar rail crash in Hertfordshire marked the beginning of a fall that has seen its shares go from £20 plus to today’s 10p. Then there’s Patientline (PTL) (shares from plus 100p to 0.75p over two years) with a controversial hospital telephone service that was the subject of an Ofcom investigation following complaints from patients about charges.

Last year was difficult for small companies in general and the FTSE Fledgling was no exception. It lost 16% in 2007 versus a 12% decline in the FTSE Small Cap, though it should be said these numbers mask the fact that all the worst Small Cap performers were demoted to the Fledgling while the Fledgling’s stars went into the Small Cap.

The FTSE 100’s ascendancy over the small and medium-sized companies is now in full train and, given current global economic fears, will remain so for the foreseeable future. This backcloth and the fact there is a lot of dross kicking around will make Fledgling winners hard to find. But if you’re willing to do the legwork the possibilities can still be great: the following pages will give you some pointers in the right direction.

COMPANY BY COMPANY GUIDE

Automobiles & Parts

by: Carlo Svaluto

Avon Rubber (AVON) 128.5p

Market value: £37.4m

PE: 15.9 EPS growth: n/a

Yield: 6.2% 3 mth rel str: -9.6%

Takeover potential: 3

The automotive components and respirators maker jumped to profit last year, but it released a gloomy statement last month. The first quarter financial performance hasn't been bright, with net debt increased more than four-fold to £12.7 million

SHARES VIEW: Now SELL Last Year HOLD

Torotrak (TRK) 22p

Market value: £32.1m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: -14.8%

Takeover potential: 3

The drive transmission expert said last month it had signed a new licence deal with a major European truck and bus manufacturer. The shares almost halved last year though, and profitability is still somewhat far ahead.

SHARES VIEW: Now HOLD Last Year HOLD

Wagon (WAGN) 34p

Market value: £39.2m

PE: 3.1 EPS growth: n/a

Yield: 13.2% 3 mth rel str: 46.8%

Takeover potential: 2

The valuation for the vehicle body structures maker would justify a re-rating, on hopes that profits will start going back up after two years of decline, but car sales are slowing down in Europe.

SHARES VIEW: Now HOLD Last Year HOLD

Chemicals

by: Rachel Robson

Carclo (CAR) 89.8p

Market value: £51.3m

PE: 9.3 EPS growth: 23%

Yield: 2.2% 3 mth rel str: -8.1%

Takeover potential: 4

The plastic components specialist has enjoyed strong growth in the specialist medical diagnostics and LED optics and lighting businesses. Prospects are encouraging, although polymer prices continue to face upwards pressure and dollar weakness is an issue.

SHARES VIEW: Now HOLD Last Year BUY

Dyson (DYS) 114p

Market value: £37.7m

PE: 6.7 EPS growth: 10.5%

Yield: 3.8% 3 mth rel str: -44.1%

Takeover potential: 3

Sales and profits rose comfortably in 2007. Growth in Ecoflex catalytic converter applications expected to continue due to introduction of new environmental regulations in 2010. However, uncertainties in the global economy, particularly in the US automotive market, may prove challenging.

SHARES VIEW: Now HOLD Last Year HOLD

Porvair (PRV) 103.5p

Market value: £42.1m

PE: 14.4 EPS growth: 10.8%

Yield: 2.5% 3 mth rel str: 1.9%

Takeover potential: 3

Metals filtration arm benefiting from increased export sales due to weak dollar and the division has made a solid recovery in profitability thanks to successful restructuring. Order books are robust and prospects for 2008 are good.

SHARES VIEW: Now BUY Last Year HOLD

Treatt (TET) 250.5p

Market value: £25.5m

PE: 12.4 EPS growth: n/a

Yield: n/a 3 mth rel str: -3.4%

Takeover potential: 3

Profits were dragged down due to effect of weaker dollar on its UK businesses and a poor performance in the US. Placing more focus on its own branded aroma chemicals than the distribution of major companies' products.

SHARES VIEW: Now HOLD Last Year HOLD

Zotefoams (ZTF) 87.5p

Market value: £32.2m

PE: 17.1 EPS growth: 17.5%

Yield: 4.8% 3 mth rel str: -4.2%

Takeover potential: 2

Another chemicals firm to be impacted by weak dollar. However, its polyolefin business has grown strongly in the UK, European and Asian markets. One of its ZOTEK F products recently achieved approval for insulation use in clean-room environments.

SHARES VIEW: Now HOLD Last Year HOLD

Construction & Materials

by: Carlo Svaluto

Alumasc (ALU) 156.5p

Market value: £56.5m

PE: 8.5 EPS growth: 30%

Yield: 6.2% 3 mth rel str: -13%

Takeover potential: 3

Last time it updated the market in October, the engineering products group said revenues, profits and the order book were ahead of the previous year. However, the outlook for the housing market hasn't improved since.

SHARES VIEW: Now HOLD Last Year HOLD

Heywood Williams (HYWD) 24.3p

Market value: £153m

PE: 3.9 EPS growth: 9.5%

Yield: n/a 3 mth rel str: -37.2%

Takeover potential: 3

The latest update from the branded building products group confirmed that earnings for the US operations would be lower. Heavy exposure to the UK, Ireland and US housing market mean that 2008 will be challenging.

SHARES VIEW: Now HOLD Last Year BUY

North Midland Construction (NMD) 225p

Market value: £22m

PE: 7 EPS growth: 38.3%

Yield: 4.7% 3 mth rel str: -32.1%

Takeover potential: 2

Shares in the civil engineering and public works contractor tanked recently when it flagged up some loss-making contracts, and the last update confirmed that profits would be below expectations. Avoid for now.

SHARES VIEW: Now SELL Last Year BUY

Pochin's (PCH) 197.5p

Market value: £41m

PE: 6.4 EPS growth: n/a

Yield: 4.6% 3 mth rel str: -26.6%

Takeover potential: 3

Full year results will be helped by the contracting division but the turmoil in the property market will hit the performance of the property division. However, the mix of activities could prove successful when the market stabilises.

SHARES VIEW: Now HOLD Last Year HOLD

Titon Holdings (TON) 56p

Market value: £5.9m

PE: 13.3 EPS growth: n/a

Yield: 7.7% 3 mth rel str: -22.1%

Takeover potential: 4

The shares of the maker of ventilation products and window fittings halved last year after the company highlighted the nasty effect of increases in raw materials, new building regulations and lower exports. The market for some of Titon's products is still subdued.

SHARES VIEW: Now SELL Last Year SELL

Electronic & Electrical Equipment

by: Carlo Svaluto

Abacus (ABU) 53.25p

Market value: £39m

PE: 3.9 EPS growth: 29%

Yield: 14.7% 3 mth rel str: -35.5%

Takeover potential: 3

Acquisitions made in the past years by the European electronic components distributor, which have now been integrated, were beneficial. Despite the weak components market the company is trading well after posting strong numbers back in November.

SHARES VIEW: Now BUY Last Year HOLD

Alba (ABA) 92.5p

Market value: £47.4m

PE: 20 EPS growth: n/a

Yield: 1% 3 mth rel str: -17.1%

Takeover potential: 3

The chairman stepped down last August and the maker of consumer electronic equipment has sold some unwanted businesses. The picture is improving a little and full-year results should show it, but a potential recovery has just started.

SHARES VIEW: Now HOLD Last Year SELL

Dialight (DIA) 116p

Market value: £36.2m

PE: 7.8 EPS growth: 52%

Yield: n/a 3 mth rel str: -3.7%

Takeover potential: 3

The LED applications expert is trading well, after the interim figures were hit by its exposure to the dollar. At full-year results Dialight should register progress from last year and the balance sheet is strong.

SHARES VIEW: Now BUY Last Year HOLD

Jersey Electricity (JEL) 46.25p

Market value: £27m

PE: 9.2 EPS growth: n/a

Yield: 2.6% 3 mth rel str: 15.9%

Takeover potential: 2

Full year profits in December rose thanks to non-core operations. The only producer of electricity in Jersey could suffer if wholesale power prices go the wrong way, as it has pledged not to increase tariff for customers throughout 2008.

SHARES VIEW: Now SELL Last year SELL

MTL Instruments (MTI) 690p

Market value: £135.3m

PE: 25.2 EPS growth: 9.5%

Yield: 1.09% 3 mth rel str: 45.5%

Takeover potential: n/a

The shares of the control equipment maker soared last year thanks to rising profits. Copper Controls UK made a £144 million cash offer last December, offering a tasty premium to shareholders, and this has been accepted.

SHARES VIEW: Now n/a Last Year BUY

Ross (RGP) 24.3p

Market value: £153m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: 63.9%

Takeover potential: 4

The designer, importer and distributor of engineering products recently said that it won't be able to to turn the half-year loss into a full-year profit. However, 2008 starts with a stronger order book.

SHARES VIEW: Now HOLD Last Year HOLD

Volex (VLX) 107.5p

Market value: £61.1m

PE: 14 EPS growth: n/a

Yield: n/a 3 mth rel str: -45.8%

Takeover potential: 4

The electronic cable assembly group is in the middle of a restructuring programme. The latest update, however, showed that operating margins are under pressure and full-year profits will be lower, but the volatile shares have made gains recently.

SHARES VIEW: Now HOLD Last Year BUY

XP Power (XPP) 222.75p

Market value: £43m

PE: 6.3 EPS growth: 21.9%

Yield: 7.8% 3 mth rel str: -20.3%

Takeover potential: 2

The shares of the power supply solutions expert have dropped 34% since November, when it warned that profits would be lower due to generally soft demand. However, the group is well placed to deliver when the situation improves.

SHARES VIEW: Now HOLD Last Year BUY

Fixed Line Telecommunications

by: Russ Mould

Patientline (PTL) 0.75p

Market value: £0.69m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: -2.6%

Takeover potential: 1

The shares plunged all the way down from 4.5p last year, as the hospital communication services provider laboured under its crushing £82.5 million net debt burden. Talks are under way to restructure those debts, but no guarantee shareholders will be left with anything.

SHARES VIEW: Now SELL Last year SELL

Food Producers

by: John Marshall

Carr's Milling Industries (CRM) 488p

Market value: £40.3m

PE: 8.1 EPS growth: 14.8%

Yield: 4.6% 3 mth rel str:-2.6%

Takeover potential: 2

The recent trading update was positive with Q1 up on last year and ahead of budget. Group should benefit from increased confidence among dairy farmers. Higher wheat prices could hit the flour business, but the rating is undemanding.

SHARES VIEW: Now BUY Last Year BUY

Narborough Plantations (NBP) 70p

Market value: £9.3m

PE: 35.6 EPS growth: n/a

Yield: 2.1% 3 mth rel str: 39.5%

Takeover potential: 2

Ignored by brokers as it is controlled by two shareholders. Beneficiary of higher palm oil prices. Should ideally go private. Would not be mourned by the market.

SHARES VIEW: Now HOLD Last Year SELL

PGI (PGI) 44p

Market value: £57m

PE: 41.9 EPS growth: n/a

Yield: 0.6% 3 mth rel str: -1.1%

Takeover potential: 2

The chairman Rupert Pennant-Rea has a distinguished if colourful past. Another specialist food producer with wide variety. Low yield. Ignored by brokers. Limited liquidity.

SHARES VIEW: Now SELL Last Year SELL

Gas, Water & Multiutilities

by: Carlo Svaluto

Dee Valley (DVW) 980p

Market value: £40.5m

PE: 13.3 EPS growth: n/a

Yield: 5.5% 3 mth rel str: -27%

Takeover potential: 4

The recent price review by the regulator bodes well for the water company, which could see increased revenues and these would feed into profits. Earning visibility and the safe yield are a plus.

SHARES VIEW: Now BUY Last Year BUY

General Financial

by: Simon Keane

Accident Exchange (ACE) 60.8p

Market value: £42.5m

PE: 4.1 EPS growth: -7.8%

Yield: 5.7% 3 mth rel str: -53.2%

Takeover potential: 2

It provides courtesy cars for those in road accidents taking referrals from dealerships. Crashed out of FTSE SmallCap in December after profit warning. The company's other problem – a legal dispute relating to old claims - appears resolved. Recovery potential.

SHARES VIEW: Now HOLD Last Year BUY

Berkeley Technology (BEK) 6p

Market value: £3.9m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: 19.6%

Takeover potential: 1

A consultancy to telecommunications and medical businesses, which has been in the Fledging for years. It also acts as a venture capitalist investing into client firms. A very small player and it's hard to see how it'll scale up to make meaningful profits.

SHARES VIEW: Now SELL Last Year SELL

City of London Group (CIN) 82p

Market value: £8.4m

PE: 1060 EPS growth: 596%

Yield: 2.44% 3 mth rel str: 0.5%

Takeover potential: 2

Sold its mining PR business for £700,000 in December and is thought to be on the lookout for acquisitions in other areas. Its markets look set to remain turbulent this year.

SHARES VIEW: Now HOLD Last Year SELL

Highway Capital (HWC) 14p

Market value: £1.1m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: -8.3%

Takeover potential: 1

Another Fledgling lifer, this time a cash shell. Last month's interim management statement revealed the board 'continues to identify and evaluate target companies,' something investors have been told since 2005.

SHARES VIEW: Now SELL Last Year SELL

S&U (SUS) 367.5p

Market value: £43.1m

PE: 6.9 EPS growth: n/a

Yield: 8.7% 3 mth rel str: -28.3%

Takeover potential: 1

It's a provider of niche consumer and motor finance in the UK. December's interim management statement revealed growing revenues, hinted at falling costs and noted improving debt quality. Potential beneficiary as high-street lenders retreat from sub-prime.

SHARES VIEW: Now HOLD Last Year SELL

Walker Crips (WCW) 112.5p

Market value: £39.3m

PE: 15.2 EPS growth: 17.7%

Yield: 2.8% 3 mth rel str: 6.6%

Takeover potential: 2

It earns about half of its revenues in commissions from private-client stockbroking versus the non-broker, more stable fee-based revenues of fund management, wealth management and corporate advisory. Private investors likely to retreat following volatility.

SHARES VIEW: Now HOLD Last Year HOLD

World Trade Systems (WTS) 4.5p

Market value: £0.4m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: 14.6%

Takeover potential: 2

The shares of the cash shell were suspended last week for failing to produce final results within FSA's new four-month deadline. Stock in what is smallest company on Fledgling went up six-fold to collapse again last summer on talk of a deal.

SHARES VIEW: Now SUSPENDED Last Year SELL

General Industrials

by: Timon Day, Dan Coatsworth

Coral Products (CRU) 9p

Market value: £1.8m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: 21.3%

Takeover potential: 3

Sales of new plastic products have been better than expected and turnover might rise for the first time in several years. The first half loss was cut from £830,000 to £180,000. The sale of its Haydock property will fetch £3 million wiping out most debt. There is some value here.

SHARES VIEW: Now HOLD Last Year SELL

Cosalt (CSLT) 310p

Market value: 76.5m

PE: 11.8 EPS growth: 13.2%

Yield: 4.3% 3 mth rel str: 0.4%

Takeover potential: 2

Making safety and protective clothing and equipment for loads of different sectors is a solid defensive place to be with little chance of a sharp downturn in sales.

SHARES VIEW: Now HOLD Last Year HOLD

General Retailers

by: John Marshall

Alexon (AXN) 69p

Market value: £31.4m

PE: 4.3 EPS growth: 17.2%

Yield: 13% 3 mth rel str: -61.5%

Takeover potential: 2

Company has been affected by the decline in consumer confidence. Could be hurt by the demise of Dolcis as some leases will revert to the group. Recent profits trend poor and immediate prospects unexciting.

SHARES VIEW: Now HOLD Last Year SELL

Caffyns (CFYN) 845p

Market value: £24.3m

PE: 23.1 EPS growth: n/a

Yield: 3% 3 mth rel str: -8.2%

Takeover potential: 3

The group was badly affected by the demise of MG Rover. However, it is now exploiting several property opportunities. Trading affected by weak consumer confidence. No broker interest – no forecasts in the market.

SHARES VIEW: Now HOLD Last Year HOLD

Beale (BAE) 41.5p

Market value: £8.5m

PE: 19.1 EPS growth: n/a

Yield: n/a 3 mth rel str: -22.2%

Takeover potential: 1

There have been five profits warnings in respect of the 2006/07 results.The dividend will be passed. No early solution for the troubles of this disparate department store group. Takeover unlikely.

SHARES VIEW: Now SELL Last Year SELL

Flying Brands (FBDU) 118p

Market value: £29.8m

PE: 7 EPS growth: 2.2%

Yield: 8.2% 3 mth rel str: -27.1%

Takeover potential: 3

There have been two profit warnings in three months. Tom Hunter’s 29.9% stake and Channel Hotels’ 12.1% holding could lead to a bid. Flying Flowers had poor Christmas. Greetings Direct may have been bad acquisition.

SHARES VIEW: Now SELL Last Year HOLD

HR Owen (HRO) 147p

Market value: £34.6m

PE: 22.9 EPS growth: 333%

Yield: n/a 3 mth rel str: 13.7%

Takeover potential: 3

Luxury car group has sold some of its dealerships. Takeover talks terminated in November. CEO Nick Lancaster nearly did MBO in 2006. Will it be third time lucky for shareholders? Little broker interest.

SHARES VIEW: Now HOLD Last Year: HOLD

Instore (INST) 7.1p

Market value: £16.1m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: -2.8%

Takeover potential: 2

Formerly known as Poundstretcher, the group has two major shareholders – Tradegro of South Africa (34.8%) and Abdul Tayub (29.8%). CEO Peter Burden was CEO of Thorntons (THT) and losses being reduced.

SHARES VIEW: Now HOLD Last Year HOLD

The writer holds shares in this company

Jessops (JSP) 7.5p

Market value: £7.7m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: -9.9%

Takeover potential: 1

The decline of this specialist retailer of digital cameras has been spectacular. Heavily indebted to the banks. May not survive. Has closed 81 stores. Further closures possible. Well respected chairman.

SHARES VIEW: Now SELL Last Year BUY

Mallett (MAE) 153p

Market value: £21.1m

PE: 24.6 EPS growth: -43.8%

Yield: 5.5% 3 mth rel str: -13.3%

Takeover potential: 3

The board warned last month that profits would be ‘substantially lower’ than in 2006. As retailer of high-quality antiques could be hit badly by depressed consumer confidence. Hit by dollar weakness.

SHARES VIEW: Now HOLD Last Year HOLD

Marchpole (MPH) 36.3p

Market value: £9.8m

PE: 12.5 EPS growth: -45.1%

Yield: 11.9% 3 mth rel str: -61.2%

Takeover potential: 1

Former YSL licensee. The interims were very disappointing leading to massive broker downgrades. Ozwald Boateng litigation settled satisfactorily. Former finance director announced retirement in July, and no sign of successor yet.

SHARES VIEW: Now HOLD Last Year HOLD

Moss Bros (MOSB) 43.5p

Market value: £41.1m

PE: 39.5 EPS growth: -46.7%

Yield: 4.1% 3 mth rel str: 4.4%

Takeover potential: 4

Company has warned that profits will fall. Price has been sustained by hopes that 28.7% shareholder Baugur might engineer a bid. Could fit well with Austin Reed, another Baugur company. Will be hit by decline in consumer confidence.

SHARES VIEW: Now HOLD Last Year HOLD

SCS Upholstery (SUY) 54.5p

Market value: £17.3m

PE: 8.3 EPS growth: n/a

Yield: n/a 3 mth rel str: -67.1%

Takeover potential: 1

The group has warned that it will pay no divi this year. Has been badly hit by the downturn in consumer confidence. Is reining back its expansion plans and the immediate outlook is very poor.

SHARES VIEW: Now SELL Last Year BUY

Health Care Equipment & Services

by: Rachel Robson

Biocompatibles International (BII) 129p

Market value: £48.2m

PE: -8.4 EPS growth: n/a

Yield: n/a 3 mth rel str: -25.4%

Takeover potential: 2

Revenues have continued to rise thanks to growth at Biocompatibles UK from a new drug-eluting Stent agreement with Abbott and other licensing activity. However, sales of Bead Products have slipped due to excess inventory held by a distributor.

SHARES VIEW: Now HOLD Last Year HOLD

Bionostics (BIO) 29.8p

Market value: £15m

PE: 14.8 EPS growth: n/a

Yield: n/a 3 mth rel str: 46.8%

Takeover potential: 5

Previously known as Ferraris, the group recently reached agreement on terms of a recommended cash offer by NAV Bidco for the entire company. The shares suspended. Has made progress with reducing debt and will be focused on reducing central costs further this year.

SHARES VIEW: Now HOLD Last Year HOLD

Bioquell (BQE) 211.5p

Market value: £86.1m

PE: 27.2 EPS growth: 206%

Yield: n/a 3 mth rel str: 27%

Takeover potential: 3

The shares really took off in 2007, with revenues and profits ticking up nicely. Order levels remain strong within its bio-contamination division and investment in research and development is continuing. Good performance should continue this year.

SHARES VIEW: Now BUY Last Year HOLD

Celsis International (CEL) 176.5p

Market value: £39m

PE: 9.2 EPS growth: 20.1%

Yield: n/a 3 mth rel str: -5.1%

Takeover potential: 2

Generating new business through cross-selling into the pharmaceutical industry following its acquisition of In Vitro Technologies in 2006. Also expanding presence in customer product and beverage industries and profits are rising.

SHARES VIEW: Now HOLD Last Year BUY

Inion (IIN) 19.3p

Market value: £14.4m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: -23.8%

Takeover potential: 2

Has undergone a strategic review and has seen several board changes over the past year. Sharpened its focus on the Spine and Specialty Orthopaedics market segment, with several new products in this area receiving marketing clearance.

SHARES VIEW: Now HOLD Last Year HOLD

Nestor Healthcare (NSR) 56.5p

Market value: £63.8m

PE: 8.3 EPS growth: n/a

Yield: 5.5% 3 mth rel str: -26%

Takeover potential:5

The shares have put in a poor performance since last July, taking an extra battering in November, when it revealed forecasts for profits in 2007 and 2008 would not be met. Has since received preliminary bid approaches.

SHARES VIEW: Now HOLD Last Year BUY

Puricore (PURI) 29.8p

Market value: £45.2m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: -13.1%

Takeover potential: 2

Focuses on the control of infectious pathogens. Recently arranged a new borrowing facility of $20 million to help refinance existing debt and fund purchases of new equipment. Has received a few US patents over past few months.

SHARES VIEW: Now HOLD Last Year HOLD

Household Goods

by: John Marshall

Havelock Europa (HVE) 85p

Market value: £33.1m

PE: 6 EPS growth: 1%

Yield: 4.6% 3 mth rel str: -31.3%

Takeover potential: 3

Shares in the educational and retail interiors and point of sale display group halved last year. The company said last month that profits would grow for the sixth consecutive year, but margins in some division are under pressure.

SHARES VIEW: Now HOLD Last Year HOLD

Victoria (VCP) 239p

Market value: £16.6m

PE: 8.2 EPS growth: 7.2%

Yield: 5.2% 3 mth rel str: -6.9%

Takeover potential: 1

This carpet manufacturer has been adversely affected by depressed demand in the UK. However, the Australian market has remained buoyant, helped by strong commodity prices. Limited broker interest

SHARES VIEW: Now HOLD Last Year HOLD

Industrial Engineering

by: Timon Day

600 Group (SIXH) 44.5p

Market value: £25.5m

PE: 9.5 EPS growth: 19.4%

Yield: n/a 3 mth rel str: -11.8%

Takeover potential: 2

It's been a long time since anyone has made any money out of 600. The patchy performance is likely to continue despite over-optimistic analyst's forecasts.

SHARES VIEW: Now SELL Last Year HOLD

Associated British Engineering (ASBE) 60p

Market value: £0.8m

PE: 2.6 EPS growth: n/a

Yield: n/a 3 mth rel str: -17.2%

Takeover potential: 4

It was a bad year for ABE as it did not sell its Polar Engines business which is making less money than expected. Secondly the company has not been able to meet its pension fund obligations and is seeking a settlement with the trustees.

SHARES VIEW: Now SELL Last Year HOLD

Goodwin (GDWN) £10.30

Market value: £74m

PE: 11.5 EPS growth: 33%

Yield: 1.8% 3 mth rel str: 33.1%

Takeover potential: 1

Family-run Goodwin has a wonderful record of rising profits and share price. Is doing a roaring business supplying valves to oil and gas companies and has expanded successfully so that over half sales come from fast-growth economies.

SHARES VIEW: Now BUY Last Year HOLD

Metalrax (MRX) 20.3p

Market value: £23m

PE: 9.2 EPS growth: -66%

Yield: 6% 3 mth rel str: -67%

Takeover potential: 1

The big turnaround programme has started with new chief executive Andrew Richardson wielding a stout broom. Metalrax has a future but why bother buying shares in a tiddly engineering company at this rating?

SHARES VIEW: Now HOLD Last Year HOLD

Molins (MLIN) 121p

Market value: £24.4m

PE: 6 EPS growth: -33%

Yield: 5% 3 mth rel str: -23%

Takeover potential: 3

Mediocre management has seen profits halve since 2002. The move into specialist packaging machinery has backfired and the core business making machinery that makes cigarettes is also having problems. But at this price maybe there will be a takeover.

SHARES VIEW: Now HOLD Last Year HOLD

MS International (MSI) 206p

Market value: £38.5m

PE: 11.7 EPS growth: 21%

Yield: 1.8% 3 mth rel str: -1.7%

Takeover potential: 1

Family-controlled MS has done extremely well this century, lifting profits from under £1 million to a probable £5 million-plus for 2007. This year will be more difficult if as expected Europe slows down sharply as most sales are in the EU.

SHARES VIEW: Now HOLD Last Year HOLD

Renold (RNO) 83p

Market value: £58m

PE: 8.8 EPS growth: -28.5%

Yield: 1.7% 3 mth rel str: -27.2%

Takeover potential: 2

Directors have increased their holdings but the share price is at a 15-month low. The quality or Renold chains and transmission products is legendary, and that should tide it through this rough patch.

SHARES VIEW: Now HOLD Last Year HOLD

Stanelco (SEO) 0.23p

Market value: £7m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: -31%

Takeover potential: 3

There are some interesting products lurking in Stanelco's corporate undergrowth. Whether they can be commercailised remains to be seen.

SHARES VIEW: Now HOLD Last Year HOLD

Tex Holdings (TXH) 110p

Market value: £7m

PE: 116 EPS growth: n/a

Yield: 6.4% 3 mth rel str: 2%

Takeover potential: 3

Tex is doing better than the PE would suggest. Indeed the shares are a tad higher than they were this time last year. Profits at its key piling equipment engineering products company were up and the company is worth rather more than its Market value.

SHARES VIEW: Now HOLD Last Year HOLD

Trifast (TRI) 60p

Market value: £51m

PE: 6.9 EPS growth: 9%

Yield: 4.9% 3 mth rel str: -12%

Takeover potential: 3

Making industrial fastenings is a cutthroat business but Trifast has progressed by opening lower-cost factories to serve Asia and other developing regions. A good takeover target for a Chinese company wanting an EU presence.

SHARES VIEW: Now BUY Last Year HOLD

Media

by: Susanna Twidale

Creston (CRE) 58.5p

Market value: £32.6m

PE: 3.3 EPS growth: 118%

Yield: 5.3% 3 mth rel str: -41.7%

Takeover potential: 3

The shares nosedived dramatically last year despite promising interims, which showed pre-tax profits more than doubling and great optimism about H2. Some more good news is needed if they are to recover.

SHARES VIEW: Now HOLD Last Year HOLD

Haynes Publishing (HYNS) 290p

Market value: £21.3m

PE: 9.2 EPS growth: -6.7

Yield: 5.3% 3 mth rel str: 7.2%

Takeover potential: 2

US markets for its automotive manuals are expected to remain soft, although the UK market is holding up better. Profits fell last year and the weak dollar doesn't bode well going forward.

SHARES VIEW: Now SELL Last Year HOLD

Mining

by: Dan Coatsworth

Anglesey Mining (AYM) 16p

Market value: £24.4m

PE: n/a EPS growth: 17.4%

Yield: n/a 3 mth rel str: -24.3%

Takeover potential: 2

About to spin its Labrador iron ore project into a Canadian-listed vehicle, retaining 50% stake. This year will see initial mining at its White Rock project in the UK, with first concentrate produced in 2009. It's been a long journey but Anglesey is finally making progress.

SHARES VIEW: Now BUY Last Year n/a

Bisichi Mining (BISI) 245p

Market value: £25.6m

PE: 40.6 EPS growth: n/a

Yield: 1% 3 mth rel str: 4.2%

Takeover potential: 3

Two-thirds of its Market value is property, the rest is coal mining. It is still fighting a legal battle with a former JV partner that backed out of an acquisition, although the firm said at the end of last year that a conclusion was close.

SHARES VIEW: Now HOLD Last Year HOLD

Nonlife Insurance

by Carlo Svaluto

Culver Holdings (CVE) 415p

Market value: £0.95m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: 5.9%

Takeover potential: 4

Shares in the insurance broking and employee benefits group have lost 43% to the current levels after reaching 740p in June. One of the key issues seems staff retention. Competition in the sector is fierce.

SHARES VIEW: Now SELL Last Year HOLD

Goshawk Insurance (GOS) 3.58p

Market value: £31.5m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: 6.3%

Takeover potential: 4

The company posted a post-tax profit for the six months to June. There are some ssues with bank debt that mean Goshawk will have to pay a penalty interest rate of 12.5% on outstanding balances.

SHARES VIEW: Now HOLD Last Year SELL

Personal Goods

by: John Marshall

Abbeycrest (ACR) 15p

Market value: £4m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: -17.1%

Takeover potential: 1

The group has transferred production from the UK to the Far East. Success has, however, eluded it for several years. No dividend, no broker interest and high gearing.

SHARES VIEW: Now SELL Last Year SELL

Alexandra (AXD) 77.5p

Market value: £25.9m

PE: 6.1 EPS growth: 6.6%

Yield: 8.1% 3 mth rel str: -27.1%

Takeover potential: 1

The group’s year-end trading update was optimistic. Should meet market expectations. Believes company will ‘grow market share’ this year. Workwear market unexciting. Limited broker interest. High yield.

SHARES VIEW: Now BUY Last Year HOLD

Creightons (CRL) 3.5p

Market value: £1.9m

PE: 5.4 EPS growth: n/a

Yield: n/a 3 mth rel str: -9.1%

Takeover potential: 1

Interims were disappointing. Increased sales were accompanied by higher pre tax loss. Badly affected by higher oil price. Virtually no broker interest - there are no forecasts in the market.

SHARES VIEW: Now SELL Last Year HOLD

Worthington (WRN) 8p

Market value: £0.9m

PE: 7.6 EPS growth: n/a

Yield: n/a 3 mth rel str: -20.4%

Takeover potential: 2

The company is seeking investment opportunities having disposed of several sites. Hindered by need to top up the pension fund. Concerned by costs of Class 1 circular. Maybe someone will put the company out of its misery with a takeover.

SHARES VIEW: Now SELL Last Year SELL

Pharmaceuticals & Biotechnology

by: Susanna Twidale

Ardana (ARA) 33p

Market value: £21.6m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: -39%

Takeover potential: 3

Sentiment has been knocked by delays in securing a licensing deal for its Teverelix product, which has several potential applications. It has secured FDA approval for trials but it is securing a partner that is crucial.

SHARES VIEW: Now HOLD Last Year HOLD

Asterand (ATD) 5.5p

Market value: £6.1m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: 12%

Takeover potential: 4

The human tissue research company was subject to a bid approach last year, which came to nothing. With the shares at these levels further bids are possible, but there is little to suggest they would command much of a premium.

SHARES VIEW: Now HOLD Last Year HOLD

Medical Solutions (MLS) 6.38p

Market value: £13.5m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: -5%

Takeover potential: 2

It has done well to reduce losses and had net cash of £14 million at its interims in September However, the market for its pharmaceutical research and services is challenging and it could be a tough year.

SHARES VIEW: Now SELL Last Year HOLD

Phytopharm (PYM) 24.5p

Market value: £13.6m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: -22%

Takeover potential: 3

Recently won $1.16 million in funding for its Parkinson's disease product and is also developing a weight-loss product with Unilever, which is expected to hit the shelves in 2009. Positive news on progress will be needed to lift the shares.

SHARES VIEW: Now HOLD Last Year HOLD

Sinclair Pharma (SPH) 52.75p

Market value: £49.3m

PE: 96.2 EPS growth: n/a

Yield: n/a 3 mth rel str: -28.5%

Takeover potential: 3

Has recently won EU registration for its coldsore product, which is set to enter a market worth more that £83 million. There are still questionmarks, however, over sales of its is eczema treatment Atopiclair, which could dent sentiment.

SHARES VIEW: Now HOLD Last Year HOLD

Vernalis (VER) 5.6p

Market value: £18.2m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: -59.6%

Takeover potential: 3

Renegotiation of an outstanding $56 million loan from Endo will be crucial going forward as cash concerns will arise if this cannot be concluded. Divestment of its US business, however, could raise some funds.

SHARES VIEW: Now SELL Last Year HOLD

Real Estate

by: Rachel Robson

Cardiff Property (CDFF) 685p

Market value: £11.6m

PE: 10.7 EPS growth: n/a

Yield: n/a 3 mth rel str: -14.3%

Takeover potential: 3

Profits and revenue have slumped, along with its share price, as the group felt the effects of the credit crunch. The number of new office lettings has been disappointing, although it still holds a well-located freehold property portfolio, providing solid stream of rental income.

SHARES VIEW: Now SELL Last year BUY

Fletcher King (FLK) 43.5p

Market value: £4m

PE: 5 EPS growth: n/a

Yield: n/a 3 mth rel str: -40%

Takeover potential: 2

The shares have plunged miserably over past six months. Interim profits, revenues and dividend have all ticked up, but due to lower activity levels in the commercial property market, full-year results are likely to fall materially short of last year's.

SHARES VIEW: Now SELL Last year HOLD

Highcroft Investments (HCFT) 685p

Market value: £35.4m

PE: 23.6 EPS growth: n/a

Yield: n/a 3 mth rel str: 9.9%

Takeover potential: 3

Its shares have not suffered to the same extent as some companies in the real estate sector, but profits have dropped on the back of a reduction in net valuation gains on investment property. Portfolio will be affected if market continues to weaken.

SHARES VIEW: Now HOLD Last year HOLD

OEM (OEM) 12.5p

Market value: £1m

PE: -10.2 EPS growth: n/a

Yield: n/a 3 mth rel str: 17.9%

Takeover potential: 2

The shares have been lacklustre for the past few years and the company has very little to show for itself. Past year has been quiet in terms of sales and has slipped back into the red. One to avoid.

SHARES VIEW: Now SELL Last year SELL

Panther Securities (PNS) 371p

Market value: £62.7m

PE: 77.8 EPS growth: n/a

Yield: n/a 3 mth rel str: 14.9%

Takeover potential:

Has made several acquisitions and disposals over the past year, supporting hikes in half-year revenue and profit. The shares have also put in a better performance than some real estate firms. 2

SHARES VIEW: Now HOLD Last year SELL

Smart (J) & Co (SMJ) 650p

Market value: 65.5m

PE: 15 EPS growth: n/a

Yield: n/a 3 mth rel str: -26%

Takeover potential: 3

The shares have taken a severe battering since October and full-year profits fell by 41%. Has commenced second and final phase of JV with Walker Group and its residential JV with Keane Developments is also under way.

SHARES VIEW: Now SELL Last year SELL

Software & Computer Services

by: Russ Mould

Alphameric (ALM) 24.5p

Market value: £55.2m

PE: 8.6 EPS growth: n/a

Yield: n/a 3 mth rel str: 73.1%

Takeover potential: 4

A failed takeover and two profit warnings made for a tough 2007. November’s £11.1 million raising at 12p helped the leisure and retail software expert stare down the big bookies in the TurfTV war but underlying trading likely to remain difficult.

SHARES VIEW: Now SELL Last year HOLD

Alterian (ALN) 117p

Market value: £51.4m

PE: 6.7 EPS growth: 71%

Yield: n/a 3 mth rel str: 0.9%

Takeover potential: 3

Encouraging January trading update shows enterprise marketing software expert is making great strides after heavy investment in product development and a trio of acquisitions. Slowdown in global advertising spend remains a worry.

SHARES VIEW: Now HOLD Last year HOLD

ClinPhone (CNP) 66.5p

Market value: £44.2m

PE: 13.7 EPS growth: n/a

Yield: n/a 3 mth rel str: 19.1%

Takeover potential: 2

A trio of poor outlook statements hammered the shares of the the provider of web and telecoms solutions to clinical trials, but operational issues have been overcome, the Datalabs deal is bedding down and any dollar strength is a plus.

SHARES VIEW: Now BUY Last year BUY

DRS Data & Research (DRS) 22p

Market value: £7.2m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: -17.8%

Takeover potential: 4

First half profits trebled, yet the firm admits it has little chance to match last year's performance in 2008, proving that it is up against pretty tough data capture competitors. Trickle of boardroom buying lately, but there are no forecasts to go on in the face of challenging times.

SHARES VIEW: Now SELL Last year HOLD

Electronic Data Processing (EDP) 53.5p

Market value: £13.1m

PE: n/a EPS growth: n/a

Yield: 4.9% 3 mth rel str: 2.4%

Takeover potential: 3

These are tough times for IT firms but the market minnow continues to progress, if from a low base. Full year profits leapt 57% yet they are still worth just £700,000, and few in the City give it the time of day, but worth a look for its attractive yield.

SHARES VIEW: Now HOLD Last year HOLD

GB Group (GBG) 24.25p

Market value: £20.3m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: 6.7%

Takeover potential: 2

Spring blip in demand for its flagship DataAuthentification platform URU badly hit the Chester firm’s shares, but interims showed losses coming down. ID fraud prevention market remains rich in potential and £3.6 million cash pile offers support.

SHARES VIEW: Now BUY Last year BUY

Gresham Computing (GHT) 67.5p

Market value: £35.7m

PE: 16.9 EPS growth: n/a

Yield: n/a 3 mth rel str: -32.6%

Takeover potential: 2

Valuation now more realistic after credit crunch hammered sentiment toward the shares in autumn. Losses came down sharply in the second half and the payment systems and cash data management service provider is expected to reach the black in 2008.

SHARES VIEW: Now HOLD Last year HOLD

IS Solutions (ISL) 24.25p

Market value: £5.7m

PE: 14.8 EPS growth: 2%

Yield: 4% 3 mth rel str: 21.8%

Takeover potential: 2

Web analytics expert is on a roll and a 94% hike in the interim dividend suggests management confidence is high. Net cash pile of £2.2 million means the shares still look very cheap.

SHARES VIEW: Now BUY Last year HOLD

Kewill Systems (KWL) 80.5p

Market value: £65.4m

PE: 8.1 EPS growth: 17%

Yield: 1% 3 mth rel str: 1.1%

Takeover potential: 2

A pair of acquisitions last spring are adding to good underlying growth at the supply chain control software expert. No sign yet of any economic slowdown pressuring client budgets and the stock is cheap.

SHARES VIEW: Now BUY Last year BUY

Macro 4 (MAO) 127p

Market value: £28.1m

PE: 6.5 EPS growth: 6%

Yield: 6% 3 mth rel str: -14.0%

Takeover potential: 4

Document and systems management expert’s shares have been hammered by fears the credit crunch will hit client spending. Juicy 6% yield, net cash balance sheet and robust recurring revenue streams should all offer support.

SHARES VIEW: Now BUY Last year BUY

Microgen (MCGN) 42p

Market value: £43.2m

PE: 9.3 EPS growth: 4%

Yield: 4% 3 mth rel str: 2.1%

Takeover potential: 2

Lost out in hard fought bid battle for Trace last year but management kept its eye on the ball and again expects to deliver profit margins above the 15% target. Net cash pile of £13.2 million provides good support and is solid if not exciting.

SHARES VIEW: Now HOLD Last year BUY

nCipher (NCH) 190p

Market value: £31.9m

PE: 15.5 EPS growth: 35%

Yield: n/a 3 mth rel str: -11.4%

Takeover potential: 2

New management, a £34 million buyback and write-offs at disappointing acquisition Abridean have all failed to improve sentiment toward the encryption expert. Purchase of NeoScale needs to convince but at least January trading statement was in-line.

SHARES VIEW: Now HOLD Last year HOLD

Parity (PTY) 46.5p

Market value: £17.7m

PE: 6.8 EPS growth: 57%

Yield: n/a 3 mth rel str: -19.9%

Takeover potential: 3

A restructuring program launched in 2005 has dragged the IT recruitment, consulting and training expert into the black but January’s trading statement had a cautious tinge and management needs to convince investors the £9.3 million debt position is going to come down.

SHARES VIEW: Now HOLD Last year BUY

ServicePower (SVR) 16.25p

Market value: £14.5m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: 13.7%

Takeover potential: 2

Pressing on with a strategy laid down in 2004 and getting good traction for its software, which manages the schedules of mobile service engineers, though again suffered deal slippages last year. Cash is a bit tight but packed with potential.

SHARES VIEW: Now BUY Last year BUY

Superscape (SPS) 9.7p

Market value: £17.6m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: 137.1%

Takeover potential: 5

Publisher of 3D games for mobile phones issued a lukewarm trading update in January but this should be academic, as Glu Mobile swooped immediately afterwards with a 10p-per-share cash offer, which values the company at £18.3 million.

SHARES VIEW: Now HOLD Last year HOLD

Tadpole Technology (TAD) 2.9p

Market value: £12.4m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: -19.5%

Takeover potential: 2

After a year of management turmoil, Tadpole has sold its geospatial arm, focused on applications streaming and improved its financial performance. Plans to change its name to Endeavors and raise around £5 million in fresh cash in the spring.

SHARES VIEW: Now SELL Last year SELL

Total Systems (TTS) 25p

Market value: £2.6m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: -2.1%

Takeover potential: 4

The shares of the provider of software to insurance and warranty sectors plunged after a cautious outlook statement in July and have yet to recover. But cash pile worth 22p per share means the loss-making underlying business is almost thrown in for free.

SHARES VIEW: Now HOLD Last year HOLD

Triad (TRD) 26p

Market value: £3.9m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: 6.9%

Takeover potential: 2

Cash resources at IT developer and consultant have been drained by litigation and now credit crunch is resulting in clients reviewing their spending plans. At least losses are coming down and separation of posts of chairman and chief executive points to an improvement in governance too.

SHARES VIEW: Now HOLD Last year HOLD

Vega (VEG) 276.5p

Market value: £56.8m

PE: 14.2 EPS growth: 6%

Yield: 1% 3 mth rel str: 53.1%

Takeover potential: 5

IT services expert is the subject of a 280p-per-share cash bid from Italian defence and electronics giant Finmeccanica. The shares are due to be delisted on 13 February.

SHARES VIEW: Now HOLD Last year BUY

Support Services

by: Dan Coatsworth

4imprint (FOUR) 175p

Market value: £44.4m

PE: 4.9 EPS growth: 33.4%

Yield: 8.4% 3 mth rel str: -45.2%

Takeover potential: 3

The promotional products supplier has seen growth in all divisions apart from trade, which has suffered from reduced production caused by restructuring problems. Cost savings from streamlining sites should start to come through soon.

SHARES VIEW: Now HOLD Last Year HOLD

Acal (ACL) 138p

Market value: £36.5m

PE: 7.6 EPS growth: 61.3%

Yield: 15.9 3 mth rel str: -28.6%

Takeover potential: 4

The technology components group recently sold its IT division. Market conditions have been getting tough for its remaining businesses – electronics and parts. Its share price has fallen more than three-fold in the past year.

SHARES VIEW: Now SELL Last Year HOLD

Agcert International (AGC) 0.88p

Market value: £2.2m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: -91.7%

Takeover potential: 2

The carbon credit trading group has been an appalling investment. The shares have plummeted from highs of over 250p in 2006 to a pitiful 1.23p now. Its chronic demise began over funding issues. It recently failed to reach an agreement with a partner, leaving it with a short position of over 7 million credits to cover.

SHARES VIEW: Now SELL Last Year BUY

API (API) 26p

Market value: £18.2m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: -61.5%

Takeover potential: 4

It recently raised £8 million to ease financial problems and fund yet another recovery plan. Sales have been falling after losing contracts and weak US demand. It will move to Aim in mid-February.

SHARES VIEW: Now SELL Last Year SELL

Armorgroup International (ARG) 27.5p

Market value: £14.7m

PE: 4.2 EPS growth: 12.9%

Yield: 9.5 3 mth rel str: -39.9%

Takeover potential: 5

The security services group has shipped in a turnaround expert to steer the business to recovery. The past year has seen the CEO removed, failed acquisitions, a profit warning and contract complications. Extremely high-risk, like its work.

SHARES VIEW: Now HOLD Last Year BUY

Corporate Services (CSV) 1.2p

Market value: £12.9m

PE: 1.7 EPS growth: 35%

Yield: n/a 3 mth rel str: -60%

Takeover potential: 4

The staffing group moved to profit in early 2007 but has fallen foul of negative sentiment towards the recruitment sector. Its healthcare staffing unit has been doing well but spin-off plans were put on hold for its vendor procurement business, Comensura.

SHARES VIEW: Now HOLD Last Year HOLD

Dawson Holdings (DWN) 99.5p

Market value: £64.9m

PE: 9.7 EPS growth: 9.9%

Yield: n/a 3 mth rel str: 5.1%

Takeover potential: 3

Trying to restore margins in its news distribution arm and grow its three smaller business including marketing services and media content for aeroplanes and airports. Efficiency programmes should squeeze some margin gains.

SHARES VIEW: Now HOLD Last Year BUY

Erinaceous (ERG) 2.78p

Market value: £3m

PE: 0.1 EPS growth: n/a

Yield: n/a 3 mth rel str: -86.6%

Takeover potential: 2

From 400p to under 3p in a year illustrates the disaster that is Erinaceous. The management was kicked out after bringing the company to financial ruin. It was involved in a property valuation scandal and is now selling off divisions. Avoid.

SHARES VIEW: Now SELL Last Year BUY

Fiberweb (FWEB) 59p

Market value: £72.2m

PE: 14.4 EPS growth: 374%

Yield: 9.1 3 mth rel str: 29%

Takeover potential: 5

Tel Aviv-listed rival, Avgol, is trying to buy the business in a 100p per share deal. Fiberweb has been troubled by profit warnings. The market pricing suggests the Avgol deal may not go through, so sell now while there is some price strength.

SHARES VIEW: Now SELL Last Year SELL

Gibbs & Dandy (GDYO) 300p

Market value: £30.4m

PE: 9.4 EPS growth: 5.9%

Yield: 5.5 3 mth rel str: -6%

Takeover potential: 4

The builders’ merchant has been noticeably quiet since August, leaving its share price in freefall. With patchy market conditions, take its silence as bad news.

SHARES VIEW: Now SELL Last Year SELL

Harvey Nash (HVN) 48.5p

Market value: £35.1m

PE: 5.5 EPS growth: 21.7%

Yield: 4.7 3 mth rel str: -15.5%

Takeover potential: 4

Its latest trading statement, the three months to October, showed 23% increase in net fee income. The company said this trend had continued for the rest of 2007, with strong cashflow and plans to pay off debt a year early. Until recruitment sector sentiment improves, sit tight.

SHARES VIEW: Now HOLD Last Year BUY

Jarvis (JRVS) 10.8p

Market value: £22.9m

PE: 2.3 EPS growth: 135%

Yield: n/a 3 mth rel str: -85.3%

Takeover potential: 4

Just as recovery was looking plausible, Jarvis posted a wider first-half pre-tax loss, and reiterated that its full-year performance was likely to be materially below previous expectations, due to reduced volumes at its On Track Machines business and a lack of visibility in its plant business.

SHARES VIEW: Now HOLD Last Year HOLD

Johnson Service (JSG) 27.3p

Market value: £16.2m

PE: 1.5 EPS growth: n/a

Yield: 28.9 3 mth rel str: -86.7%

Takeover potential: 4

The dry cleaning and laundry services group has warned of lower profits in 2008 because of high interest costs. The company is now on its third CEO in the past 14 months after the last two failed to turnaround the troubled business.

SHARES VIEW: Now SELL Last Year SELL

Litho Supplies (LTS) 42.5p

Market value: £9.4m

PE: 10.9 EPS growth: n/a

Yield: 9.3 3 mth rel str: -18.6%

Takeover potential:

The printing materials supplier is fighting back after profit fell in early 2007. It has started to buy companies to help become a bigger operation. Unfortunately, its share price continues to head south. 3

SHARES VIEW: Now SELL Last Year SELL

Macfarlane (MACF) 28.5p

Market value: £32.8m

PE: 9.6 EPS growth: 46.5%

Yield: 7.4 3 mth rel str: -0.6%

Takeover potential: 3

A pick-up in trading after a mixed session over the past few years suggests Macfarlane is still worth a look. It is on the acquisition trail after selling its US/Mexican operations in October.

SHARES VIEW: Now HOLD Last Year HOLD

Northern Recruitment (NRG) 62.5p

Market value: £10.9m

PE: 5.5 EPS growth: 14.6%

Yield: 12 3 mth rel str: -21.7%

Takeover potential: 4

The staffing consultancy was hit by a slowdown in business for its NRG Connect response-handling business. The rest of the group was trading steadily when it last updated the market, in October. But poor sentiment towards recruiters has left the shares weak.

SHARES VIEW: Now SELL Last Year SELL

Office2Office (OFF) 110p

Market value: £39.8m

PE: 5.4 EPS growth: n/a

Yield: 7.4 3 mth rel str: -20%

Takeover potential: 3

A mixed 2007 saw the CEO quit, the company cautious on trading and sentiment hurt after it withdrew from a Ministry of Defence tender because of low margins. The share price has more than halved in the past 12 months. With no catalyst for a recovery in sight, time to walk away.

SHARES VIEW: Now SELL Last Year SELL

OPD (OPD) 151p

Market value: £40.1m

PE: 3.3 EPS growth: 15.8%

Yield: 7% 3 mth rel str: -40.4%

Takeover potential: 4

Recruitment company locked in a takeover battle against Hydrogen for troubled rival Imprint. Its share price has fallen more than three-fold since mid-2007. If it fails to secure the acquisition, OPD could become a target itself.

SHARES VIEW: Now HOLD Last Year BUY

Parkwood (PKW) 108p

Market value: £20.7m

PE: 8.7 EPS growth: 13.8%

Yield: n/a 3 mth rel str: 11.8%

Takeover potential: 3

Profit for 2007 should beat market expectations, Parkwood recently claimed. Its grounds management business is doing well but golfing operations have been hit by the wet summer. It is still struggling to find a buyer for its healthcare arm.

SHARES VIEW: Now HOLD Last Year BUY

Waterman (WTM) 139p

Market value: £40.2m

PE: 8.8 EPS growth: 12.4%

Yield: 4.5 3 mth rel str: -20.4%

Takeover potential: 3

The engineering consultant is doing a roaring trade with notable gains overseas. UK operations are busy with urban regeneration projects and it has broken through the £100 million annual group revenue mark. The shares look cheap considering solid long-term prospects.

SHARES VIEW: Now BUY Last Year BUY

Watermark (WMK) 13.8p

Market value: £6.4m

PE: 4.4 EPS growth: n/a

Yield: n/a 3 mth rel str: 41.7%

Takeover potential: 3

The airline catering group continues to struggle. Operational issues in its services arm are a worry. Restructuring is ongoing but, with little sign of major improvement, investors should stay well clear of this stock.

SHARES VIEW: Now SELL Last Year SELL

Technnology Hardware & Equipment

by: Russ Mould

ARC International (ARK) 28.5p

Market value: £43.5m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: -26.2%

Takeover potential: 2

Chip design expert made three acquisitions last year as it tries to end a string of losses dating back to 2000's flotation. Licensing delays and weaker dollar meant 2007 was less strong than hoped, however, and profits now not expected until 2009.

SHARES VIEW: Now HOLD Last Year HOLD

Bede (BED) 3p

Market value: £2.6m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: -43.9%

Takeover potential: 4

Summer's putative approach has yet to lead to a bid and the semiconductor production equipment expert is now staring at an industry downturn. New chief executive, appointed in summer, has his work cut out getting the firm into the black for the first time since 2000's flotation.

SHARES VIEW: Now SELL Last Year SELL

CML Microsystems (CML) 84p

Market value: £12.6m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: -11.9%

Takeover potential: 1

Slashed its dividend last year, even though management owns more than 20% of the shares, as cash pile was eaten away by operating losses. Silicon chip market could be facing slowdown in demand in 2008 to compound the problems.

SHARES VIEW: Now SELL Last Year SELL

Danka Business (DNK) 3p

Market value: £7.9m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: -47%

Takeover potential: 1

Office imaging equipment expert has sold off its non-US operations and is back in the black at the operating level but still is still labouring under huge debts and could face a slowdown in demand if the US economy falters.

SHARES VIEW: Now HOLD Last Year HOLD

Dmatek (DTK) 122.5p

Market value: £26.7m

PE: 12.3 EPS growth: 43%

Yield: n/a 3 mth rel str: 3.2%

Takeover potential: 1

The shares of the Israeli electronic tagging expert took a battering as it digested US acquisition Pro-Tech, but January's trading statement was reassuring: a patent dispute has been settled and the balance sheet remains net cash.

SHARES VIEW: Now BUY Last Year BUY

Network Technology (NTY) 49p

Market value: £1m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: -2.8%

Takeover potential: 1

Computer networking equipment maker operates in fast-growing but brutally competitive market. Heavy investment in sales in US and UK means profitability is marginal though management has ambitions to pay a dividend in time.

SHARES VIEW: Now SELL Last Year HOLD

Northamber (NAR) 56p

Market value: £16.5m

PE: n/a EPS growth: n/a

Yield: 4% 3 mth rel str: 3.4%

Takeover potential: 2

Cash pile of £9.6 million offers support to valuation, but weaker dollar, fierce pricing and the credit crunch have all made life very tough for the trade-only distributor of IT equipment, which operates on razor-thin profit margins.

SHARES VIEW: Now SELL Last Year HOLD

Plasmon (PLM) 14.25p

Market value: £17.2m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: -48.2%

Takeover potential: 2

A change in management, a cost-cutting programme and the launch of a second generation of its blue laser ultra dense optical (UDO) optical storage products have yet to drag the information archiving expert out of the red. Debt burden of £8.8 million no help either.

SHARES VIEW: Now HOLD Last Year HOLD

Telspec (TSP) 5.75p

Market value: £2.3m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: -14.6%

Takeover potential: 2

Component supply problems punctured sales at the telecom equipment tiddler last year, but cost-cutting and property disposals mean the balance sheet is net cash. Will struggle in a fast-moving market. Moves to Aim on 18 February.

SHARES VIEW: Now SELL Last Year HOLD

Trafficmaster (TFC) 41.75p

Market value: £56.9m

PE: 9.4 EPS growth: 27%

Yield: n/a 3 mth rel str: -26.9%

Takeover potential: 2

The vehicle tracking systems specialist reassured a couple of weeks ago that it was on target to meet expectations, while launch late last year of fleet management system, Fleet Director, should help. On PE below 10, the shares are not expensive, but it has a patchy profits record.

SHARES VIEW: Now HOLD Last Year BUY

Zetex (ZTX) 46p

Market value: £47.9m

PE: 13.8 EPS growth: 2%

Yield: n/a 3 mth rel str: -29%

Takeover potential: 2

Silicon chip firm's decision to focus on the telecom, automotive and industrial markets in Asia is strategically sensible but has been hampered by the weaker dollar. Risk of an industry-wide downturn in 2008 is high.

SHARES VIEW: Now HOLD Last Year HOLD

Travel & Leisure

by:Rachel Robson, John Marshall

Carlo Svaluto, Dan Coatsworth

Games Workshop (GAW) 172p

Market value: £53.5m

PE: 41 EPS growth: 37.7%

Yield: n/a 3 mth rel str: -26.7%

Takeover potential: 1

The recent record has been appalling. Profits peaked at £19.9 million in 2003/04. Company will not pay a divi this year. Demand is still falling in its main market, management seems too optimistic and the rating too high.

SHARES VIEW: Now SELL Last Year: SELL

NXT (NTX) 8.38p

Market value: £11.7m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: 11.2%

Takeover potential:3

The developer of audio and touch technologies, best known for its flat panel loudspeaker technology, has been restructuring, and marketing of the technology is going well. Cash break-even point should be near, but it's very early stages.

SHARES VIEW: Now HOLD Last Year HOLD

Real Hotel Company (RHC) 23p

Market value: £20.1m

PE: n/a EPS growth: n/a

Yield: n/a 3 mth rel str: -2.4%

Takeover potential: 3

The hotel operator ended 2007 with a major profit warning after seeing its UK mid-market hotels underperform. In the process of restructuring its UK franchising and launching new brands. Leisure business has been disappointing.

SHARES VIEW: Now SELL Last Year BUY

Regent Inns (REG) 20.5p

Market value: £23.2m

PE: 4.8 EPS growth: n/a

Yield: n/a 3 mth rel str: -65.7%

Takeover potential: 5

Currently in takeover talks. Reports suggest the suitor is private equity group Alchemy, which tried to buy the business last year. Trading has been appalling and the shares look so cheap that a decent bid premium is unlikely. Don't wait for a takeover, sell now while there is some price strength.

SHARES VIEW: Now SELL Last Year HOLD