Germany’s Top-Performing Smallcap Surges Again on Contract Win

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(Bloomberg) — A breakneck rally in the shares of a German pipeline builder accelerated this week after the company won a role plugging LNG terminals on the coast into the nation’s gas grid. 

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Friedrich Vorwerk Group SE’s stock is up 24% since last Friday’s close, the biggest gain on Germany’s small-cap SDAX index. The bulk of the advance came after it secured a contract valued in the hundreds of millions of euros to build a 86km-long pipeline with a consortium of companies. 

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It’s an example of how European firms are benefiting from the wall of money Chancellor Friedrich Merz has unleashed to overhaul the nation’s infrastructure and military. The contract is the latest deal to help revive the fortunes of the builder of underground gas, electricity and hydrogen pipes, sending its stock price to a record high. 

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It’s “more like an add-on. It’s just nice to have,” said Nikolas Demeter, an analyst at B Metzler Seel Sohn & Co AG.

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For now, the company still has three buy ratings out of five from analysts. That may change because their targets trail the company’s current share price after this week’s contract win took its advance in the year past 200%.

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The shares now trade at almost 32 times forward blended earnings, compared with about 14 times for the SDAX index and the Stoxx 600 Index, the European benchmark.

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Labor Challenge

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Leon Mühlenbruch at mwb research AG, who has a valuation-driven sell rating on the stock, warns that Vorwerk’s full order book could become a problem.

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“Capacity constraints are becoming increasingly relevant,” Mühlenbruch said. “Further growth depends on expanding that capacity, a challenge due to the persistent shortage of specialized skilled labor.”

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But for now the Tostedt-based company is on a roll, and its rebound in recent years has been dramatic.

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After an initial public offering in 2021, its stock slid below €10 in the years that followed as analysts voiced concerns about its margin structure and cost management skills. It was trading above €82 per share on Friday. 

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Friedrich Vorwerk Group will be building the pipeline with the Austrian HABAU Group, which comprises PPS Pipeline Systems and HABAU. The main construction work is set to begin in 2026.

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