European ‘Investors tired of bicycle manufacturers’? A window into investment finance thinking

In this guest feature we hear from Arnauld Hackmann, Editor-in-chief at NieuwsFiets.nu, a Dutch Cycling Industry focused publication, exploring the view of 2 European banking sector analysts, along with wider financial sector reporting, regarding investors and the bicycle industry.

Over to you Arnauld:

According to the Financieele Dagblad (FD), it seems that investors are less interested in bicycle products. This is not due to the number of buyers of bicycles, but more to the fact that this number is not expected to grow.

“The bicycle sector is having a hard time, companies that make bicycles, parts or accessories are selling less. The results are falling and investors are also dropping out, resulting in price falls of sometimes tens of percent. After a period of turbulent growth during the corona years, the bicycle market seems to be structurally saturated,” the FD kicks off. “The bicycle sector is having a hard time on the stock market. A number of big names saw up to a third of their market value go up in smoke in twelve months. It must be a sobering experience for makers of bicycles, parts and accessories after the exceptionally profitable corona years.”

The FD comes with a look back at the bicycle industry in recent (corona) years, which sounds very familiar to everyone in the market. There was a lot to be desired and now, after a period of long delivery times, problems and peak rates in container transport and a shortage of products, a great deal is available again, but demand is declining.

The FD concludes from this that times have changed and substantiates this, among other things, with the price drop that Shimano has experienced on the stock exchange. This is 23% lower than last year, despite the fact that they had a good year in 2022 with the largest annual turnover ever. This should not come as a complete surprise, because Shimano repeatedly warned of a cooling down market last year when presenting market figures.

In addition to Shimano, the FD also recalls layoffs at Specialized and Stella.

“Consumers leave the new, normal, bicycle in the shop window for a while”. Through ING analyst Tijs Hollestelle, the FD says that the bank is not shocked. “The demand for bicycles, which has taken on extreme forms in recent years, is regaining its old form,” Hollestelle analyses matter-of-factly, but he expects the growth to slow down for a while.

He finds Banking sector analyst Martijn den Drijver of ABN Amro at his side, who is also not surprised. “Consumers in the largest markets, Europe and North America, are leaving the new, normal bicycle in the shop window for a while due to high interest rates, inflation and job insecurity. That is not structural,” says Den Drijver, “but it will negatively affect the sales results in 2023 and 2024.”

The FD then switches to Giant, which recently acknowledged that it had requested (and received) a deferment of payment from suppliers. According to the FD, Giant’s market value fell by 35%, despite the fact that sales increased by 12.5%.

For the time being, the suffering for the sector is not over. The Taiwanese Giant, the world’s second largest bicycle manufacturer, had a hard time at the fair last year. The stock market value fell by 35% in the past twelve months, while turnover increased by 12.5% ​​in 2022.

Merida, Giant’s competitor from Taiwan, also saw the stock market value fall. They are all facing higher production costs, partly caused by the war in Ukraine, which are putting pressure on profitability. And that is what investors are most concerned about.

“Governments encourage e-bike use with subsidies and infrastructure AMB Amro analyst Den Drijver has a positive bounce, which is due to the popularity of e-bikes. “Governments are driving up the use of this with subsidies and infrastructure and that keeps demand going,” Den Drijver told the FD. “Doubly good news for the sector, because the absolute profit margins on electric bicycles are high. Patience is called for, because due to the economic conditions it will take until 2025 before this will become visible in sales again.”

(SOURCE: Het Financieele Dagblad)

For readers keen to explore a global overview of investment in the industry, the latest edition of the Cycling Industry News magazine talks with John Bastian and Boris Partin of Baird.

John Bastian formed part of the team that guided Dorel Sports offload to PON Bike, helped Fox Factory go to IPO and recently guided Wahoo.

Boris Partin – “I think our organisation remains extremely bullish on cycling going forward. It’s an attractive market that will rise from a wave of consolidation.”

To read the full ‘ Bear with us….’ feature, via the online edition of the CI.N magazine, click here.