Friday 13 December 2013

Analysis of Accell Group

A Dutch bicycle brand company

Company: Accell Group

Business: A Dutch company that are active with the design, development, production, marketing and sales of bicycles, bicycle parts and accessories and fitness equipment. They have several well-known bicycle brands under their umbrella and continue to expand their business by buying more and more brands. To mention a few they have: Raleigh, Batavus, Juncker and Brasseur. For the full list of brands please look here.

Active: Strong presence in Europe with almost 80% of their revenue (50% of that is in the Netherlands and Germany almost equally distributed) in the US they make almost 15% of their revenue and finally with around 4% in the rest of the world.

P/E: 13.2

This company was analysed due to a request that can be found here and it came from Falk. I find it a very exciting company based on what they do. They buy up high- to mid-level bicycle brands that are already established on a home market in Europe or North America and then use their size and organization to get even better margins.

contrarian values of P/E, P/B, ROE as well as dividend
The P/E of the Accell Group is too high for my liking with 13.2 and also the P/B is slightly more than what I favour since it is 1.2 but together with Grahams formula the company becomes a very clear buy. The earnings to sales are as low as 3% which I would have expected to be higher due to that they go high quality end with their bicycle brands and the ROE is also low with 9.3%. The book to debt is ok with 0.7. In the last five years they have had an excellent yearly growth of 7.5% which has to a certain extent been done via acquisitions of new bicycle brands. The motivated P/E then becomes around 19 to 23 which means that the market is strongly undervaluing the Accell Group at the moment. They pay a very high dividend of 5.9% which last year then also represented 77% of their earnings which means that it is too high. They also realised this and want ideally to pay out around 40% of their earnings per year. They therefore offered to give the dividend either as cash or as new issued stocks to their shareholders meaning that there is a stock dilution going on. Generally they are continuously increasing their shares. They had 9 million back in 2005grew to 9.8 in 2008, the made a split in 2009 and then 2011 they had 21.1 million shares and now in 2012 they were up at 23.1 million with the optional dividend payment which will push it up even further. Regarding their debt which on my quick look I was slightly concerned about I would say is actually something positive. With all the brands that they are buying up they have obviously also received a lot of debts here and there. Now in 2013 they decided to clean up that mess and took some large loans as a group to be able to pay off and homogenize all those little debts that the brands/companies had so this has of course given them better interest rates etc. and the debt as such was not pushed up with an additional 300 million which I feared.

Conclusion: Very interesting company and Graham says buy to it and I do not know if I would go for it. Last year they did have a bad year in terms of earnings and built up a large inventory. I do not like their E/S and the ROE. I also see problems with cut dividend one way or the other unless they manage to significantly push up earnings and their continued increased amount of shares I also do not like. So I like the concept of the company but find there to be too many question marks for me to invest in them but Graham does give his ok to it! I do however think that 2013 might end up looking very good for them and I hope that I will remember to make a new analysis in 2014 based on the annual report from 2013...

I will also add Accell Group to my follow list on the next update and that list can be found here.

If this analysis is outdated then you can request a new one.


Falk said...

Thank you again Fredrik for your detailed analysis. I also like the business model of Accell but I don't like, as you already mentioned, their share dilution policy. So, I will wait for a share price with a higher margin of safety, e.g. 10 - 12 €.


Fredrik von Oberhausen said...

You are welcome Falk!

I think many of us must learn that it can be better to wait a bit longer for the perfect investment then to jump into something so, so.

I once again got reminded of my bad judgement and how I jumped into a boat to quickly with my Asian Bamboo investment when it more or less over night dropped an additional 40%.

if there are too many question marks simply stay away and find something better, add to an old investment that is running ok etc.