Tandem (LON:TND) was pitched to the Stockopedia Investment Club on the 23rd of March 2021 when the share price was 545p.

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The group’s shares have underperformed in the past, but in February 2020 the CEO stepped back into a non-exec board position and the chairman left altogether.

Since then, we have seen a spike in demand for bikes due to lockdowns and the near term outlook for outdoor leisure goods is also positive. January trading was up 75% LfL and this momentum has continued. The most recent FY20 Final Results show that FY21 year-to-date revenues in the 11 weeks up to 21 March 2021 were approximately 90% ahead year-on-year.

Meanwhile, the group has just announced the acquisition of land it intends to build into a warehouse and distribution facility for its growing online businesses. New ERP systems are also expected to improve operational efficiency. These are longer term growth initiatives that stretch beyond recent positive tailwinds.

So is Tandem turning a corner or will the group revert back to previous trading levels? And are micro caps just too risky for the Club to consider?

Catalyst 1: Short term Covid tailwinds in cycling, outdoor leisure products, and golf,

Catalyst 2: Freehold acquisition will reduce costs, improve fulfilment, and deliver £0.2m annualised overhead savings from June 2022,

Catalyst 3: Longer term growth initiatives (direct-to-consumer online businesses have ‘significantly increased turnover and profitability’; ERP and finance system should ‘significantly improve operational efficiency and distribution speed’).


Summary

Bull points - cash generative and profitable; benefitting from short term Covid tailwinds; longer term investment and growth potential in online businesses; modest valuation; recent freehold acquisition to be immediately earnings enhancing once constructed; improving relationship with shareholders; ERP initiative should boost profitability.

Bear points - has struggled to generate revenue growth in the past; prolonged periods of share price underperformance; speculative and illiquid micro cap; current trading conditions may not last; previously strained relationship with shareholders; slow and cautious approach to growth; ERP execution risk; recent director selling.


Profile

Tandem designs, develops, distributes and sells sports, leisure and mobility equipment. It's listed in the Consumer Cyclicals sector as part of the Leisure Products industry group.

Although the group only reports one operating division, in truth it is structured into three businesses:

  • Tandem Group Cycles - designs, manufactures and distributes bikes…

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