Tom Konrad CFA
The Euro crisis rolls out a bargain in the stock of a leading e-bike manufacturer.
A little over a year ago, I concluded a 27 part series looking into non-oil stocks that might benefit from rising oil prices by picking what I thought were the four best stocks I had found in the process. I had not yet bought any of the stocks picked because, as I said at the time,
I personally do not yet have a position in any of these stocks because I expect the stock market to continue to decline in the near term. I’m waiting to make my purchases (of a possibly slightly different set of peak oil stocks) at even more attractive valuations.
It took a bit longer for the market to fall than I expected. Now it has, especially in mainland Europe. This is a good thing for bottom-fishers seeking peak oil stocks: With high gas prices, limited domestic oil supplies, and a realistic attitude towards climate change, Europe is far ahead of the US in spawning companies that will be able to survive and flourish in a world of constrained oil supplies.
The Four Picks
One of my “four best” peak oil stock picks was a Chinese company with a NASDAQ listing. The other three were European. The Chinese company was Advanced Battery Technologies (ABAT), which I liked because of their e-bike business and apparent cheap valuation. I did not foresee that the company would be one of many Chinese companies accused of cooking their books. The allegations have not been proven, but ABAT has also not been able to provide enough information to clear its name, so the stock has fallen by two thirds since I wrote the article, but I’m only interested in investing in companies with financial statements I can trust, so I’m no longer watching the stock.
The best performing of the four picks is London-listed Stagecoach Group (SGC.L), an operator of rail and bus services in the UK and North America. Stagecoach is up about 50% since last September, but I did not participate in the gain because I was waiting for a pullback.
In between these two lie Dutch bicycle manufacturer Accell Group (ACCEL.AS), and German commuter and high-speed rail supplier Vossloh AG (VOS.DE). Both of these companies did well through the middle of this year when the Euro crisis began to heat up, and now they’re both below their levels from when I originally wrote the article. Last week, I took a position in Accell stock, because I like the current valuation (at 12.74 Euros.) With the crisis continuing, there is still room for further declines, but I feel like there is currently enough blood on the streets to take an initial position, despite the ongoing uncertainty.
Accell Group is a Europe-centric manufacturer of bicycles, bike parts, bike accessories, and fitness equipment. The stock trades on the Amsterdam stock market with the symbol ACCEL. The company owns a wide portfolio of national and international bicycle brands, and the company’s strategy is to buy and cultivate brands that are or can be leaders in their respective national or functional niches. The company’s annual report lists 18 “main” brands with focuses on everything from bikes for kids (Loekie), to high-quality bikes and e-bikes in the Netherlands (Koga-Miyata), to bike parts suppliers like Junker and Brasseur. If there is an underlying theme among the brands it is attention to research in innovation combined with sophisticated distribution and marketing.
Accell’s current strategy is to reemphasize the lackluster fitness segment, while putting greater emphasis on higher margin e-bikes and sales outside its core European markets. Europe’s high fuel prices and compact cities have led to a cycling culture and a rapid adoption of e-bikes, giving Accell an early advantage in developing the sorts of e-bikes that appeal to commuters.
This e-bike expertise is why I see Accell as a good peak oil stock: As higher fuel prices lead motorists to seek other modes of transit, e-bikes allow people at all levels of age and fitness to participate in bicycle commuting. Accell has the experience selling to bicycle commuters to understand the features they want.
Accell maintains a high but variable dividend yield by setting the dividend at approximately 40% of net profits each year, and allowing shareholders to opt to take the dividend either in shares or cash. Nearly half of all shareholders opted to take the dividend in additional shares in recent years (48% in 2010, 44% in 2011). This both allows the company to offer a high (6.7%) dividend yield and to reinvest substantial cash in the business.
Both management and analysts following the company expect 2011 sales and earnings to exceed those in 2010, despite a disappointing third quarter. In Q3, poor weather in the company’s core European markets depressed sales, while the economic storm clouds emanating from the uncertainty around the Euro are making dealers reluctant to build up stocks of next season’s models. One bright spot was Germany, where demand remained strong, driven by increased purchases of Accell’s more expensive e-bikes displacing purchases of conventional bicycles.
All this uncertainty drove the share price down sharply last week until, at Euro 12.76 the company is trading at only 7.6 times expected 2011 earnings and 1.25 times book value. With a current dividend yield of almost 7%, I’m comfortable buying and holding this stock through the ups and downs of the European market.
Further, although Accell’s core European markets may be hurt by the fallout of the Euro crisis, I feel that much of that damage is already priced into the stock. Accell’s growth markets are in the rest of the world, and a falling Euro will only make it easier to increase exports.
All in all, now seems like a great time to take Accell for a spin.
DISCLOSURE: Long ACCEL.AS
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