Micro-Caps are 'Underpriced', Analyst Suggests

Many small firms' shares are currently drastically underpriced, an investments expert has claimed.

Gervais Williams, head of UK Smaller Companies at financial firm Gartmore, suggested that these "micro-cap" shares represent the best buying opportunities in the current market. This is because the ongoing credit crunch has caused many institutional and private investors to shift their focus to larger shares, which are seen as less risky.

However, this trend has led to micro-caps, which are traded off the FTSE All-Share Index in places such as the AIM or the FTSE Fledgling Index, becoming more and more attractively priced.

Mr Williams commented: "Economic uncertainty means that the market has been largely ignoring the potential of investments at this end of the market. We're finding companies that are not only undervalued but plainly mispriced. Some of these stocks could rise by a multiple of our invested capital over time."

However, the analyst also pointed out that he remains sceptical about the prospect of a rapid recovery to the UK economy, meaning that big rises in overall equity prices are likely not to occur in the near future. Therefore, investors are advised to tread carefully in the current market conditions.

Micro-caps cited by Gartmore as being cheap at current prices include Civica, Endonis, Titan Europe and Aero Inventory.