This is the final part of this 2011 Performance mini-series and we turn to the UK AIM Index again to examine its worst 5 performers and discover a potential rockbottom bargain amongst the debris!

Last time, I reviewed AIM’s top 5 performers including the share that rose 1450%!

If you would like to read some of my other 2011 Performance reviews, you can access them all via this mini-series link.

 

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The first thing to notice here is that all five of these poor performers lost more than 96% of their value in 2011.

For that to happen, there had to be some serious problems in these companies.

As we shall see, that was indeed the case!

One of these companies is being liquidated.

Of the other four that are still trading, one is hanging on by its fingernails and two more are cash shells looking for an investment to start trading properly again.

The good news is that one of the companies looks like it is through the worst of it and is getting back on its feet again and could therefore present a great buying opportunity!

To find out which company share this is, read on.

Carpathian (CPT) Down 96.3%

This company’s shares started the year trading at 31p and had fallen to 1.15p by the year end.

However that’s not the worst of it.

Its shares peaked at 156.5p in March 2007!

Since then, this real estate holdings and development company operating in Central and Eastern Europe has suffered badly due to declining property values brought about by the unavailability of suitable debt finance and macro-economic challenges.

The company announced a strategic review in October 2008 and in March 2009 announced the results of that review were to sell all its properties, de-list from the AIM stock market and liquidate the company.

So the writing was on the wall for this company throughout 2011 and will cease to be no more in the near future when its disposals are complete.

Creon Corporation (CRO) Down 96.5%%

Whilst this company sits within the Financial Services sector, it’s story is similar to the last in that it supplied finance to developers of UK residential properties.

Its woes began in November 2008 when it began to have difficulty finding new customers and the finances to go with them.

Its shares have had a number of step falls during 2011 as more bad news reached the market; trading of the shares were suspended for a period; etc.

As it currently stands, debts are still owing to directors and administrators; costs have been cut to a minimum and the company has widened its net to offer finance more broadly than just UK residential developers.

Despite that, they still can’t find anyone to lend to!

This company looks almost dead and buried to me and I expect that to become the result in the near future so there is no investment proposition for us here.

GMA Resources (GMA) Down 96.7%%

This company had a Joint Venture with a gold miner operating the Amesmessa Gold Mine in Algeria.

Unfortunately, the mine was not producing gold of a high enough grade for the mine to cover its costs despite the record gold prices at the moment.

In addition, exploration in the surrounding region was failing to locate better gold prospects.

In short, the opportunity was not as prosperous as GMA had hoped and it therefore announced its plans in October 2011 to withdraw from the joint venture.

It is now a shell of a company looking for a new project to invest in.

If and when it finds one, it may become a buying opportunity but we can’t evaluate that until we know what it is.

Let’s move on then.

Healthcare Locums (HLO) Down 97.6%

This company’s shares started 2011 at 133p having fallen from a peak of 287p in December 2009.

As if that wasn’t bad enought in itself, the company asked for its shares to be suspended from trading on the AIM market on 25th January 2011 when it discovered accounting irregularities.

The company was formed in 2003 to supply temporary (locums) and permanent healthcare staff such as doctors, nurses, social workers, etc. to private and public health facilities.

The shares at one time were a darling of the AIM market rising from 57.5p when it floated on the market at the end of 2005 to that peak of 287p four years later as it became a top 3 provider of healthcare staff.

Share trading was restored in September 2011 but not before some major re-work by an almost new top team.

The Chairman was dismissed and the Finance Director told to resign soon after following findings of misrepresented asset values and profits.

Only one of the original board remains with the company.

Pleasingly the new CEO is a man with a wealth of experience in the recruitment industry as MD of Michael Page, a global recruitment company.

During the suspension period, the finances of the company were completely restructured to reduce its heavy debt burden which included a debt for equity swap and issuing of new shares.

The shares on 8th February are trading at 3.88p, having risen from a low of 2.61p on 19th December, 2011.

At this price, the shares represent a forward Price Earnings Ratio of 4 times forecasted 2012 profits.

Not only that, but after the refinancing, the shares trade on a Price to Book Value much below the magic figure of 1.

If trading confidence can be restored amongst its client base and the good news flow returns, the share price in this company could rocket.

I don’t expect it to reach 287p any time soon after the issue of all the new shares but I would expect an investment at this price to be multiplied several times over in the next 2 years or so or maybe sooner.

This could be the rockbottom bargain we are looking for but is also high risk and thus one for the brave.

Leed Petroleum (LDP) Down 99.1%

This was an oil & gas explorer and was the worst performer on the AIM market in 2011.

Having peaked at a share price of 697.5p in June 2008, they finished 2011 at a paltry 0.22p!

That is a fall of 99.97%!!!

Put into money terms, if you had invested £1000 in this share in June 2008, you would have only 3p of it left!

Remarkably though, this company is not dead yet.

It claims to be an investing company, focused mainly on what it calls “impact funding” of Oil & Gas opportunities in Africa.

Previously, Leed was operating in the Gulf of Mexico (so why Africa now?) but ran into funding difficulties when it failed to meet its financial performance ratios.

Its only lender, Unicredit Bank AG, could have pulled the plug there and then but, instead, imposed a repayment plan with strict dates to afford Leed the opportunity to find new lenders and/or fix its problems.

Unfortunately, Leed failed to meet this plan and its revisions continuously over the next 3 years as it failed to find an alternative lender or sell assets to raise the required funds.

Leed announced suspension of its production in the Mexican Gulf in April 2011 and suspension of trading its shares on the AIM market in March 2011 when it became clear that it was “game over”.

Shares re-commenced trading in June following debt restructuring but the company is now a shell company, like GMA mentioned earlier, and could well cease to trade in the near future if suitable projects are not found.

Lessons Learned from the AIM Index in 2011

Looking at bombed out debris like these companies may seem negative to some of you but they are useful for two key reasons.

Firstly, you can learn an awful lot about why companies fail and why their share prices fall.

This helps us to spot the signs of bad companies earlier than we otherwise would do and avoid the worst investment opportunities.

Doing that alone can help us to raise our investment returns above the market average.

It also teaches us to look for the opposite conditions thus helping us to identify the winners.

Combining these two aspects bring me to my second reason for doing this.

If we find a company amongst the debris which is now showing the right signs of recovering and rising like a phoenix from the ashes, we have a fantastic investment opportunity.

In my opinion, this is how you make the real money in share investing.

It is not by using fancy day-trading processes that lose their value as more people learn about them and use them.

And it is not by copying everyone else and following shares that have already done spectacularly well as you hope it continues for ever.

Real investment is about spotting opportunities before everyone else does.

Indeed, the time to sell is quite often the time soon after all the newspapers have tipped the shares and the feeding frenzy has started.

From this list, only one share potentially fits those desirable conditions but it may be a little early yet to dive in?

I’ll be looking at Healthcare Locums more closely and doing some deeper research.

Let me know if you do the same and what your views are in the comments below.

It is also the end of this mini-series.

As a reminder, you can read the rest of my 2011 performance articles here.

I hope you’ve enjoyed them and learned something from the experience?

Adrian