The bargain shares for 2008

The table below gives a brief summary of the main metrics. Below that, you'll find some background on each of the companies. The links take you to a page containing more articles and financial data on the company in question.

Colefax (CFX)

Market reaction to first half results from Colefax, an international designer and distributor of furnishing fabrics and wallpapers, show just how risk-averse investors have become. In fact, despite reporting a double-digit sales increase in the six months to the end of October and a 34 per cent hike in pre-tax profits, shares in the small-cap company are languishing close to 12-month lows, having fallen by a third since the autumn.

Moreover, if we are conservative and assume that Colefax only matches its 2007 full-year performance - when it reported earnings per share of 24.8p - then the shares are trading on a meagre seven times post-tax earnings. It is worth noting, though, that on the back of these results house broker KBC Peel Hunt actually upgraded its EPS estimate for the year to end April 2008 by 12 per cent to 26.6p.

True, there are risks involved - especially with the property market cooling and growing evidence that the economic slowdown is accelerating on both sides of the Atlantic. Indeed, over half Colefax's sales in its fabric division come from the US, including upmarket brands such as Jane Churchill, Larsen and Manuel Canovas. However, it would appear that luxury brands are proving more resilient to the consumer slowdown. Chairman David Green reports that: "Current trading has proved robust in the UK and Europe, with a slight slowdown seen in the US." Interestingly, sterling is now weakening against the US dollar as its yield support disappears, which will be beneficial to Colefax given its US exposure. In fact, every 1c movement in the exchange rate adds around £65,000 to revenues, which will help to cushion any further slowdown in sales from the US.

Colefax may have above-average operational gearing, but it is not financially geared - net borrowing stood at a modest £0.75m against net assets of £17m. Strip out £5m-worth of plant, equipment and property assets and, using Ben Graham's strict criteria, Colefax squeaks into our portfolio with adjusted net current assets (less all non-current liabilities) around half its current market value of £26m. Add to that a progressive dividend policy - the 7 per cent hike in the first-half payout is hardly the sign of a company battening down the hatches - and Colefax gets my vote, trading on under seven times earnings, yielding 2.4 per cent and with a bargain rating of 0.45.

Ambrian Capital (AMBR)

Following a savage derating in the past six months, small-cap and resources-based investment bank Ambrian Capital is an interesting and relatively low-risk proposition for investors. In fact, the bank is now capitalised bang in line with its last reported book value of £52m at the end of June 2007, of which a healthy £20m was in cash net of client's deposits.

True, Ambrian's £32.1m investment portfolio has taken a few hits since then, including a 40 per cent slump in its holding in Aim-traded Jubilee Platinum, which had a value of £9.3m in June and was the largest holding. But there have been successes, too - including a doubling in the value of the £1.5m stake in Anglesey Mining - although these will not be enough to offset all the paper losses. So it's worth remembering that IFRS accounting requires Ambrian to mark-to-market the value of its investments, changes of which are reported as revenues in the income statement. Consequently, reported profits are likely to be volatile and subject to the short-term fluctuations in the underlying value of the investment holdings when the bank reports its full year results in March.

A relatively robust balance sheet aside, Ambrian Capital offers growth from three wholly owned subsidiaries: Ambrian Partners, a corporate finance adviser and stockbroker with 34 corporate clients; Ambrian Commodities, a member of The London Metal Exchange and a broker-dealer of LME traded metals, precious metals, carbon credits and soft commodities; and Ambrian Asset Management, a specialist investment management business. In the first half of last year, investment banking accounted for £5.4m of revenues - a 26 per cent increase on the same period in 2006. Mining clients represented just under half of this, although Ambrian also serves the oil & gas, alternative energy and technology sectors.

There is decent dividend yield support, too, with Ambrian paying a 1.75p a share dividend last year, to give a 3.7 per cent yield. So backed by a solid balance sheet, and with some promising businesses in investment banking servicing the fast-growing commodity sectors, Ambrian is worth buying on a bargain rating of 1.0.

Indian Film Company (IFC)

The Indian Film Company (IFC) floated on Aim last June, raising £52.8m net of expenses, with the intention of investing in films and retaining the full ownership rights, although the rights can be shared with co-producers where necessary. The strategy is to build up a library of 30 to 40 films with the portfolio comprising a broad mix of small, medium and big-budget films ranging from £1m to £7m.

To date, the company has 20 films in its pipeline - including 10 co-productions - and launched its first release, Jab We Met, a light-hearted romantic comedy, last October. Of the funds raised at flotation, at the end of September the company had £44.3m net cash on its balance sheet and is committed to further payments totalling £19.2m, having already paid out £7.9m to date. These payments and contracted commitments accounted for all the £27.1m-worth of intangible assets on IFC's balance sheet at the end of September. Since then, payments on films have reduced the cash pile to £33m at the end of last year and management expects to deploy around £20m of these funds in the final quarter of 2008.

Admittedly, film production is at the higher-risk end of the spectrum, so until there is firm evidence that IFC has invested wisely, the shares are likely to languish at a discount to net asset value of 98.7p a share.

However, there are some promising signs. For instance, IFC acquired the worldwide distribution rights for the film Welcome from UTV Motion Pictures in November and the film has since broken a number of box office records since it was released on 21 December. In its opening week, Welcome grossed £6.4m, representing the highest opening week of all time for a comedy film in India and the highest opening week for its lead star Akshay Kumar. In the UK, the film grossed £550,000 in its first week, making it into the UK top 10 charts and in North America it grossed £371,000 in the same period.

In addition, IFC has sensibly tried to maximise the revenues on release of its films by linking up with Studio 18, the production, marketing and global distribution division of Network 18, India's leading media conglomerate. This will help with the marketing and film distribution of films in the UK and US. And, since Network 18 invested £10m in IFC at the time of the float, it has a vested interested in pulling out all the stops.

So, trading 24 per cent below net asset value and on a bargain rating of 0.65, IFC gets a starring role in our 2008 Bargain Portfolio.

Inland (INL)

Urban regeneration specialist Inland specialises in picking up land assets - often brownfield sites - transforming them and pushing through planning applications in a bid to increase their value before selling them on. The company raised £50m net of expenses at 50p a share last April when it floated on Aim, following an £11m pre-IPO private placement. When it reported first-half results in October, net cash stood at £42.8m and the development pipeline of 1,200 residential plots had a gross development value of £340m. The company also booked profits of £1.1m for the period, including bumper gains on the disposal of three sites in Buckinghamshire and Middlesex.

Since then, Inland has acquired Poole Investments for £11m, the primary asset of which is a 9.5 acre site with waterside frontage in Lower Hamworth, Dorset and an investment property on the site generating a rental income of £335,000. The plan here is to gain planning permission to develop the site for a mixed-used scheme. Inland has also bolstered its development pipeline, which stood at 1,350 residential plots with a build value of £360m at the end of last year, as well as 230,000 sq ft of commercial space.

Admittedly, the uncertainty surrounding the slowing residential property market has dogged Inland's share price, which is now 30 per cent below the float price. However, the company's strategy looks relatively low-risk as it is creating value for shareholders by gaining planning permission on brownfield sites in the south of England where there are severe restrictions on the availability of land for development. The shares are not without risk but, on a bargain rating of 1.0, the shares are worth backing on a medium-term view.

Raven Mount (RAV)

Raven Mount (www.theravengroup.co.uk) is more than your average run-of-the-mill property company. For a start, it has the management contract for property fund Raven Russia, a company that is developing a $1bn (£515m)-plus portfolio of high-yielding industrial warehouses in the region. This gives the company a £9.7m annual fee - equating to 2 per cent of the base value of the portfolio - and this revenue stream is expected to increase significantly in the next 18 months as Raven Russia (www.ravenrussia.co.uk) builds out its existing projects. However, investors are jittery about anything with property exposure, so Raven Russia's share price has taken a battering since the autumn and that has knocked £3m off the value of Raven Mount's 10.7m shares in the company (it also has 7.65m warrants exercisable at 100p a share at any time until 29 July 2010). Still, Raven Mount can afford to sit on the stake, accruing its chunky management fees - in time, it will be rewarded when Raven Russia's portfolio is fully developed and investors finally acknowledge the attractions of its business.

In the UK, Raven Mount is in the final stages of winding down the Swan Hill residential development business (acquired in December 2003) and is now focused on providing independent housing for the elderly and offering a range of additional care services through its Audley Independent Living residential business. Audley is developing 400 units across four sites with an end value of £140m, managing and marketing another 168 units on three other sites and has a development pipeline of 250 units on four additional sites. The operation is expected to turn profitable this year.

Both the fund management business and Audley have decent long-term prospects and, with a lowly geared balance sheet - net borrowings of £15.2m at the end of June were well within the company's £53m banking facility and gave gearing of less than 20 per cent - the shares are being harshly rated, trading in line with net asset value of 71p. Add to this a progressive dividend policy - the shares yield 2.4 per cent - and Raven Mount gets my vote on a bargain rating of 0.93.

El Oro And Exploration Company (ELX)

Investment fashions come and go, but there is one certainty on the stock market: El Oro and Exploration Company. The investment company dates back to 1886 and a glance at its annual report and accounts reveals a trading history going all the way back to 1950. In this time, the shares have risen from 2p to the current 610p, albeit off a record high of 722p at the end of last year.

El Oro also brings C Robin Woodbine Parish, who in time-honoured fashion, used his chairman's statement in November's preliminary results to voice his views on a variety of diverse subjects, including sovereign wealth funds, the presidency of the US and the belligerence of Iran. Despite this apparent eccentricity, there is clear logic in the company's asset allocation, which is heavily biased towards mining and oil and gas producers, with a smattering of asset-backed holdings in real estate, pub operators and investment companies. At the end of June, El Oro's £135m investment book had over 50 holdings in the £74m UK-listed portfolio. International holdings accounted for another £48m and unlisted investments a further £11.8m. And, with net borrowings of £31.2m, the company is sensibly geared.

With equity markets taking a pounding this year, El Oro will have taken a few hits, too. However, with the shares trading 23 per cent below the last stated net asset value of 793p (at 30 June 2007), the market is already factoring this in. So, given its excellent track record and heavy weighting to the commodity sectors, the shares are worth tucking away on a bargain rating of 1.29.