SMALL stock market quoted firms in Lancashire could be undervalued by as much as 50 per cent, a report out today claims.

Many small firms are out of favour on the stock market as investors like pensions funds opt instead for safer investments in blue chip companies.

In the past month two private investors have bought large stakes in small East Lancashire firms - Blackburn-based Crown Eyeglass and Burnley-based Northern Textiles parent group French - believing their shares to be undervalued.

Now research carried out estimates that many small firms - those worth less than £300 million - could be worth as much as double their current share price.

"This research shows that the market is seriously undervaluing some of the region's most important businesses," said Maghsoud Einollahi, head of Deloitte & Touche Corporate Finance in the north.

"By placing a financial straitjacket on these companies the market could be severely hindering their economic welfare unless alternative means of financing investment needs can be found.

"The most interesting aspect of this research shows that historically these firms were valued properly. It is only in the past year of two that the undervaluation phenomenon has been observed."

The report concludes that many of the smaller firms will merge to create companies capable of appearing on the institutional investor's radar screens, be taken over by larger firms or be bought in management buy-outs taking advantage of the low price.

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