MARKET COMMENT
Three Cheap Small-Caps

By Maynard Paton (TMFMayn)
August 13, 2003

So far this year, the FTSE Small Cap index has surged 27% while the FTSE 100 is up just 6%. So, have all the small company bargains disappeared? Not exactly -- these three AIM-listed shares still appear cheap.

1. Access Plus (LSE: APU)

A provider of print-related marketing services and former growth share darling. Sadly, slack demand for junk mail and a sizeable bad debt wrecked the earnings growth record. Recent results though showed Access getting back on track, with new contracts underpinning some bullish boardroom comments. Notably, the dividend was improved throughout the difficulties and the firm has been buying back its shares. Indeed, so cheap were the shares earlier in the year, Access received a takeover approach. Negotiations are still ongoing, but a price to earnings (P/E) ratio of 8 and a 6% dividend yield remain on the table.

2. Churchill China (LSE: CHH)

One of the world's leading manufacturers and distributors of high quality ceramic tableware. Yet to recover fully from a calamitous drop in profits and share price in 1997/8, which gave new meaning to the term 'mug punter stock'. However, signs of life have been emerging from Churchill of late: the latest figures revealed positive sales news and a substantial company restructure. Brokers believe the revival should provide earnings growth of 11% this year and 36% next, giving a 2004 P/E of 7. Also worth noting is Churchill's £2m of net cash and historic price to book ratio of 0.7.

3. Tolent (LSE: TLT)

A provider of various services to builders, civil engineers and property developers. A possible growth stock in the making as well, with profits having doubled since the 1999 flotation. Recent progress hasn't been too smooth though, with Tolent suffering from lower fit-out work in London and delays to a Leeds development. Nevertheless, a substantial workload was carried into 2003, which supports estimates of 10-13% profit growth this year and next. However, cash flow isn't the greatest, contracts tend to be lumpy and margins are wafer thin. But hey, what do you expect when the forecast P/E is below 5?

Key features

Company     Share    Market   Forecast growth     Forward
            price    value      EPS     DPS     P/E   Yield
             (p)      (£m)      (%)     (%)            (%)

Access Plus  148       27       20       4      8.5    6.1
Churchill    170       18       11       6      9.4    5.9
Tolent        76       10       13      11      4.9    6.6

More: AIM Companies discussion board