Tim Bachmann
Investing in the bicycle industry - tailwinds continue in the long term, but headwinds in the short term
Riding a bicycle not only has a positive effect on human health, but investments in the industry behind it have also often brought investors tidy profits in recent years. "The long-term structural factors that have caused the industry to soar are still intact, but the industry is facing cyclical headwinds in the short term," says Tim Bachmann, portfolio manager of DWS Invest ESG Climate Tech, on the occasion of World Bicycle Day on 3 June.
The purchase of bicycles will continue to be subsidised, for example through scrapping premiums for old mopeds, job bikes or free bike transport on trains, says the portfolio manager, who is himself a passionate cyclist. Bachmann completes the 100 kilometres from his home to Frankfurt and back on his three office days by bicycle. In addition to the ongoing subsidies, he points to the continued expansion of the bicycle infrastructure, regulatory policies that impose stricter penalties for illegal parking on bicycle lanes, for example, and the recent drastic increase in petrol prices, which is primarily responsible for the continued strong demand for cargo bicycles. "Other reasons why we like the industry are the consolidation within the industry, the strong pricing power of the suppliers, which we prefer over the manufacturers, the high brand awareness as well as the visible aftermarket business, for example through retrofits," says Bachmann.
Selling off from fuller warehouses again could dampen growth momentum
According to the portfolio manager, the current headwind also results from the fact that investors considered the shares of companies from the bicycle industry as winners of the coronavirus pandemic analogous to Netflix or Zoom. In addition, supply chain bottlenecks and rising costs for intermediate products such as semiconductors for motors and battery cells for electric bicycles weighed on the earnings prospects of bicycle manufacturers and suppliers.
"It is also very important that bicycles from the low and medium price segment with recommended retail prices of 600 to 800 euros are again somewhat easier to get hold of, as stocks in wholesale and retail are better filled again. This could continue in the highly profitable premium segment. And a sell-off from higher stocks again would then result in a normalisation of growth rates at suppliers. Due to the high basis for comparison, this could even lead to a decline in sales," says the portfolio manager. The valuation levels of numerous companies in the sector have already fallen significantly, with many currently trading well below their historical average range. "However, I fear that expectations are still too optimistic, especially with a view to the 2023 fiscal year," says Bachmann.
About DWS Group
DWS Group (DWS) is one of the world's leading asset managers with EUR 902bn of assets under management (as of 31 March 2022). Building on more than 60 years of experience, it has a reputation for excellence in Germany, Europe, the Americas and Asia. DWS is recognized by clients globally as a trusted source for integrated investment solutions, stability and innovation across a full spectrum of investment disciplines.
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