[SharePad] Small-Cap Spotlight Report: HORNBY

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22 August 2021
By Maynard Paton

Turnarounds can be tempting.

You find a business that has hit big trouble with a stock price at rock bottom…

…but you believe your contrarian instincts will yield a huge return as the company enjoys a full recovery.

Mind you, distinguishing genuine turnarounds from shares heading for the graveyard is never easy. And even if the company does recover, the journey typically involves multiple false dawns and takes far longer than anyone ever expects.

One potential recovery worthy of consideration is Hornby. Although the manufacturer of the famous model trains has suffered numerous setbacks during recent years, the following bull points may attract the turnaround investor:

  • The company owns a collection of celebrated old brands that could be hard to replicate;
  • Customers include enthusiastic hobbyists, with the recent success of wonder-stock Games Workshop showing what is possible with such committed purchasers;
  • A previous company recovery led to a 10-bagger share-price gain;
  • One institution seems very keen on the group’s prospects by owning 75% of the stock;
  • The limited free float, £78 million market cap and absence of broker forecasts keep the company off many investors’ radars, and;
  • The latest results showed a return to profitability and a net cash position, which may negate the chance of further major problems.

Read my full Hornby article for SharePad.

Maynard Paton

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