Accell Group: This Small-Cap Will Benefit From The Booming E-Bike Market

Dec.13.13 | About: Accell Group (ACGPF)

E-bike sales in Europe are booming, despite the poor weather conditions and an ongoing economic crisis. Especially in Germany, the use of e-bikes grows very fast. It is expected that the e-bike market in Germany will continue to grow fast in the upcoming years. Accell Group N.V. (OTCPK:ACGPF) is in a good position to benefit from the increasing sales in the e-bike market. This will support the company's attractive annual dividend payment (currently 5.4%) and provides some upside potential.

The company

Accell Group is a Dutch bicycles manufacturer and is headquartered in Heerenveen, the Netherlands. The stock is listed on the NYSE Euronext in Amsterdam and is part of the Amsterdam Small Cap Index (AScX-Index). Accell Group focuses on the international middle- and high-end market for bicycles, bicycle parts and fitness equipment. The company has a leading market position in western Europe, Turkey and the United States. Some familiar brand names are: Batavus, Koga, Ghost, Hercules, Raleigh, Diamondback, Lapierre and Redline. The company earned $1.043 billion in sales during the full year 2012.

The company released a trading update on November 19, 2013. Accell Group expects higher sales in 2013 compared to 2012. However, the earnings per share will decline in 2013, because of higher interest expenses and one-time restructuring charges. The underlying profit in 2013 will be equal to the underlying profit in 2012. As a result of the trading update, the shares fell 15% and currently trade at €12.80 ($17.66) a share. Analysts and investors were disappointed by the lower earnings per share guidance. Accell Group's shares trade sideways this year, between €12.00 ($16.32) and €15.00 ($20.40) a share (see graph below).

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Source: Yahoo! Finance

The company's results depend on several factors, including customer confidence and weather conditions. During the first nine months of 2013, consumer confidence and weather conditions in Europe were very unfavorable for Accell Group. Therefore, the company was forced to sell the remaining inventories with higher discounts and gross margins declined significantly. This explains the expected decline of earnings per share in 2013. Under normal weather conditions and recovering consumer confidence in Europe, earnings per share are likely to increase again in 2014. The dealers responded positive on the introduction of Accell Group's 2014 models.

Dividend policy

According to Accell Group's corporate website, the company targets to pay at least 40% of the annual net profit in dividends. The company achieved their dividend goal over the past four years. In 2009, 2010 and 2011, Accell Group paid 48% of the annual net profit in dividends. Due to a sharp decrease of the annual net profit, the company lowered the dividend payment in 2012. It is expected that the company will lower the dividend payments in 2013, because of another small decrease of the annual net profit.

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Despite the disappointing earnings per share in 2012 and 2013, Accell Group should be able to keep the dividend payments around €0.70 ($0.95) a share in 2013. This equals a 5.4% dividend yield. One of the reasons that Accell Group should be able to maintain the current dividend yield is that a large part of the shareholders choose to receive stock dividends instead of cash dividends. In 2012, 39% of the shareholders received stock dividends instead of cash dividends. This is also a sign that the shareholders are confident in Accell Group's future.

E-Bike market

The German e-bike market is a fast growing market. The graph below shows that the total number of units sold increased from 200,000 units in 2010 to 380,000 units in 2012. According to the German industry association ZIV, the total number of units sold will add up to 430,000 units in 2013. The German e-bike market shows the same growth pattern as the Dutch e-bike market several years ago. If this trend continues, the total e-bike sales will be 15% of total bicycle sales in Germany in 2015. The total e-bike units sold in Germany could increase to 600,000 units in 2015.

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Source: Industry Association ZIV

Accell Group is in a good position to benefit from the increasing German e-bike market. The company achieved a 12% sales increase in Germany during the first half year 2013, while the total bicycle market posted a small decrease during the same period. The sales increase was caused by a 28% increase of e-bike sales during the first half year in 2013 compared to the first half year in 2012. Accell Group has very strong brands in Germany, including Ghost, Haibike, Hercules and Winora. It is very likely that these brands will benefit from the increase in demand for e-bikes in Germany during the upcoming years.

Another market with great potential is the e-bike market in the United States. Despite the market for e-bikes in the United States is still very small, the e-bikes in the United States have a lot of potential. While gasoline prices keep on rising, the need for alternative transportation will grow over time. E-bikes are an effective and fast and an excellent alternative for short and mid-distance transportation. Accell Group acquired Raleigh, a well known brand in the United States and the United Kingdom. If the e-bike market in the United States will develop into a fast growing market, the company has taken the right steps to profit from such developments.

Dividend growth

Accell should be able to grow earnings in Germany by 25% over the next two years. This equals an additional revenue of € 50 million ($69 million) or 6.5% of Accell Group's total sales in 2012. E-bikes have a higher gross margin than normal bicycles. I expect that the additional e-bike sales in Germany will contribute € 10 million ($13.8 million) to the net earnings in 2015. Considering that the total net profit amounted € 23 million ($31.7 million) in 2012, the total net profit should amount to € 33 million ($45.5 million) in 2015, when all other markets are equal to the 2012 earnings.

I expect that the earnings per share will increase by 43% in 2015 compared to 2012, if the performance of the other markets is equal to 2012. This will enable Accell Group to at least maintain the current dividend payments. The total dividend payment should be around 50%, when Accell Group's earnings per share will increase by 43% compared to the year 2012. It is likely that the share price will benefit as well. Therefore, I expect that Accell Group's share price will increase by at least 40% in the next two years. If the American e-bike market starts to develop, this upside potential could be even higher.


Accell Group is a great stock for a dividend portfolio. Despite a decline of the net profit and the dividend payment during 2013, the yield is still 5.4%. I expect that the net profit will rise again in 2014 and 2015, because Accell Group suffered from extremely bad weather conditions, higher interest expenses and restructuring charges in 2012 and 2013. Further, the company is well positioned to profit from the booming demand for e-bikes in Germany and potential demand for e-bikes within the United States. Therefore, I do believe that Accell Group is able to pay a stable 5% dividend in the upcoming years and deliver 40% share price gains in the two upcoming years.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.