Grom The Paunch and Toy Trains Among Smallcap Winners in 2020
As Europe Locked Down, Niche Smallcap Stocks Were 2020 Winners
(Bloomberg) -- In a year like no other, investors have bought into some offbeat stocks in their pursuit of pandemic winners. Among them: a swimming-pool builder, a musical-instrument retailer and a maker of model railways.
While home-delivery firms and providers of remote working technology have been some of the more obvious beneficiaries, a legion of smaller companies have also found niches to make lockdown restrictions work to their advantage.
Take the example of German homewares retailer Westwing Group AG, whose stock has risen more than eightfold in 2020 after its ottomans and fancy linen proved popular in lockdown. Or U.K. bicycle maker Tandem Group Plc, which has more than tripled in value as people have sought alternatives to public transport.
“I cannot remember another year that offered so many opportunities,” said Patrik Lang, head of equity research and strategy at Julius Baer. Looking ahead, small caps in general “could do very well” in 2021, he said in an interview, noting that their more cyclical nature offers greater exposure to any further recovery for the global economy.
In a year when the Stoxx 600 Index has struggled back toward where it started, here are some of the quirkiest winners:
Westwing Group (+770%)
The homewares retailer proved a hit during lockdown. With founder Delia Lachance providing inspiration on Instagram, revenue at the Munich-based firm rose 66% in the last quarter. Even so, further marketing and technology investment will be needed in 2021, along with an expansion of the group’s own-label business, according to Citigroup Inc.’s Matthew C Garland.
Gear4Music Holdings Plc (+193%)
People who used lockdown to learn the piano, or even record that dream debut album, provided a boost for Gear4Music. The U.K. musical-instrument retailer reported half-year gross profit up 61%, adding 403,000 new customers. The company is winning market share and has healthy margins, Peel Hunt’s Jonathan Pritchard wrote in a note.
Tandem Group (+189%)
Retailer Halfords Group Plc isn’t the only U.K. stock benefiting from Britain’s biking boom. Tandem, owner of the Claud Butler and Falcon brands, says the pandemic “changed the landscape” for cycle sellers. “Our greatest challenge has been to remain in stock,” the Birmingham, England-based group said alongside its interim results in September.
Naked Wines Plc (+182%), Italian Wine Brands SpA (+54%)
The impact of shutting pubs and bars was felt almost immediately by online wine retailers. Naked Wines announced a spike in demand in early April, and said last month that current-year sales would grow as much as 65% after high demand for its U.K. Christmas offers crashed the retailer’s website. Peer Italian Wine Brands, meanwhile, said first-half sales rose 32% year-on-year, boosting the stock to a record. However, Liberum’s Wayne Brown provides some caution: “What we do not know is how these customers will behave in a ‘normalized’ year,” the analyst said in a note.
Games Workshop Group Plc (+81%)
Gorbad Ironclaw and Grom The Paunch had a busy lockdown as loyal Warhammer players refreshed their collections. Six-month pretax profit at maker Games Workshop jumped by about half, leaving the stock on track for another year of outperformance.
MORE: Goblin Lovers Boost Games Workshop Shares During Lockdown
Fluidra SA (+61%)
Summer 2020 was a scorcher, leaving many locked down at home eager to cool off. Swimming-pool builder Fluidra, based in Barcelona, said residential sales jumped 26% in the third quarter, though the commercial division continues to be hit by social distancing restrictions on the hospitality sector.
Hornby Plc (+50%)
Train enthusiasts have spent more time and money on their hobby while stuck at home. Hornby reported a 33% jump in half-year sales, helping the British company’s shares recover further from a disastrous 2016.
According to Kartik Kumar of Artemis Investment Management LLP, Hornby’s second-largest shareholder, uniqueness can help keep competition away. “It’s unlikely that you or I would want to start up a model train company to compete with Hornby, which has a brand that’s been around for over a hundred years,” Kumar said in an interview.
However, Britain’s divorce with the European Union is an obstacle for Hornby, too. The company, which earns about a quarter of revenue outside its home market, announced this month that it would pause all non-U.K. orders until Jan. 4 due to Brexit uncertainty.
Viscofan SA (+26%)
The maker of skins for chorizo and other sausages was one of the top performing stocks in Spain’s Ibex 35 Index in 2020. Viscofan reported net income up 13% in the latest quarter, helped by greater at-home consumption linked to Covid-19, according to Mirabaud analyst Manuel Lorente. The firm, based in northern Spain, also benefited from a jump in pork prices due to African swine flu, as well as improved efficiency at a new plant, he said.
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