Bargain Share Portfolio 2008 Update

Colefax (CFX: 84p, market capitalisation £12.9m)

Website: www.colefaxgroupplc.co.uk

Designer & distributor of furnishing fabrics

Colefax held up well last year until the savage market sell-off in October sent its share price tumbling. Half-year results to the end of October, released in January, reveal that there has been a significant downturn in the US, the company's main market, and current trading is described as "tough, getting tougher". Pre-tax profits fell by a quarter in the six-month period to £2.5m, reflecting a slump in sales in the company's decorating business due to the falling housing market and worsening economic conditions.

However, a deterioration in the economy and property market were always risks, as I pointed out a year ago. And despite the sharp fall in price Colefax still has its attractions. The company remains financially robust: net assets of £20m include net cash of £2.2m, property and plant worth £5.3m and inventories of £14.9m. The board is also holding the first-half dividend at 1.55p a share, although the dividend policy will be kept under review. The plunge in sterling is also good news since the company should benefit from significantly higher margins next year on the back of the strengthening dollar (hedging contracts are only in place for the second half of the current financial year). Still, sentiment and the trading environment are very poor, so the shares are a hold at this level, but remain a geared play on any signs of an upturn in the US.

Inland (INL: 7p, market capitalisation £11m)

Website: www.inlandplc.com/investors

Land developer

With the housing market crashing, property sales collapsing and housebuilders in preservation mode rather than looking to do land deals, Inland has suffered accordingly. The land developer's net asset value fell from 38.1p to 32.9p a share in the first half of 2008, and we should expect another hit when it reports full-year results shortly.

Given this backdrop, Inland has taken steps to realign its cost base and has secured a £10m revolving credit facility on its land holdings to give it some extra headroom. It is also focusing on agreements with landowners to create value on their brownfield sites. That way it can profit from some of the development upside, but without incurring the financial outlay. It has also been releasing cash from its own sites and recently sold a small site in Middlesex for £0.7m - 2.6 per cent below its carrying value. Inland retains a stake in housing regeneration and strategic land specialist MJ Gleeson worth £1.5m.

The immediate outlook is poor but, at 7p, the shares have medium-term recovery potential. Chief executive Stephen Wickes, who holds a 12.8 per cent stake, certainly thinks so as he has bought 150,000 shares in the past six weeks.

El Oro and Exploration Company (ELX: 393p, market capitalisation £42.3m)

Website: www.eloro.co.uk

Investment company

El Oro's net asset value fell by 13 per cent to 693p in the 12 months to June 2008, but a widening of the share price discount to net assets means that its shares have fallen by a third to 393p in the past year. The company's investment portfolio will have taken a further hit since June given the dramatic falls in financial markets.

This derating is understandable since El Oro's focus has been on commodity-based investments as well as a mix of mature and asset-backed companies in the property, beverages and utility sectors. However, the company, under the leadership of chairman C Robin Woodbine Parish, has a fantastic long-term track record and while the shares have fallen heavily, they have comfortably outperformed the Aim All-Share index.

El Oro is in the process of restructuring itself into a new investment vehicle and plans to move its listing to the Channel Islands Stock Exchange for tax reasons. The shares remain a long-term holding.

Ambrian Capital (AMBR: 13.75p, market capitalisation £14.7m)

Website: www.ambrian.com

Investment bank

Ambrian's commodity-based focus served it well during the boom years, but it has suffered in the downturn as IPO and fund-raising activity dried up. In addition, its investment portfolio (mainly listed companies in the resource sector) took a hit and was worth £13.7m at the end of June. This was down from £20.5m six months earlier, although £5.8m of the fall was down to realisations. The company has also made realisations since then, selling its holding in Golden Prospect Precious Metals for £4.2m. At the end of June, Ambrian had net assets of £42.1m - three times its current market value - of which £28.8m was in cash.

This robust balance sheet means that Ambrian is in a strong position to weather the downturn. Don't expect any profits for last year, though, as the fall in value of its investment portfolio and tough trading environment will lead to a loss. Still, the interim dividend of 0.75p a share was held and, if the final of 1p is maintained, the yield is an attractive 12.7 per cent. The shares have clear medium-term recovery potential.

Indian Film Company (IFC: 28.25p, market capitalisation £15m)

Website: www.theindianfilmcompany.com

Film production company

The Indian Film Company's (IFC) share price has lost two-thirds of its value in the past year, even though the Bollywood film company's net asset value has risen from 98.7p a year ago to around 112p (based on current exchange rates). The plunge has been so dramatic that there has been shareholder unrest and the Altima India Master Fund, which owns 14.39 per cent in IFC, had two of its directors appointed to the board as non-executive directors last week and IFC has agreed to carry out a strategic review of its business.

It's easy to see why. To date IFC has invested £59m in film projects, but with a market value of £15m, the company is valued 75 per cent below its underlying net asset value of £61.6m. And it's not as though IFC has been investing the money unwisely. It posted an operating profit of £1.3m in the six months to end-September and its latest release, Ghajini, grossed £15m in its first week - an Indian box-office record.

Trading at a fraction of the company's 100p-a-share float price and on a massive discount to net asset value, the shares have recovery potential, especially with activist shareholders making their presence felt.

Raven Mount (RAV: 19.5p, market capitalisation £21.1m)

Website: www.theravengroup.co.uk

Property company

The market has punished shareholders in Raven Mount in the past year - but unfairly so, because the company has made a series of disposals that investors have so far failed to recognise the full value of.

For example, at the end of October Raven Mount sold its stake in Audley Independent Living residential business for £15m, a deal that enabled the group to pay off all virtually all its borrowings. One month later it completed the disposal of its Russian Property Fund Management business for £15m in cash and 80m shares in Raven Russia, of which 64m have been distributed to shareholders.

This leaves the group with a stake in Raven Russia worth around £6.2m, net cash in the bank and a 15 per cent shareholding in stockbroker Oriel Securities. The combined value of these assets easily exceeds its current market value. In addition, Raven Mount has residential property schemes in Lewes, Brackley and Sheffield and a joint venture in the Cotswolds, The Lakes, and subject to planning consent, a hotel and residential scheme in The Bahamas. It is also seeking joint ventures with financial institutions to manage out their distressed assets.

The shares may be depressed, but they are very undervalued. Moreover, with the company about to start a share buy-back of up to 16.8 per cent of its share capital, there is clear scope for upside.

BARGAIN SHARE PORTFOLIO 2008 UPDATE

*Includes 0.57 shares in Raven Russia distributed to Raven Mount shareholders on 28 Nov 2008