Profit from the rise in pedal power

How did you get to work this morning? If it was on a bicycle, you're in good company. Cycle commuting has grown by 91% in London since 2000, with bike sales across Britain up from 3.1 million in 2005 to 3.64 million last year. It's a similar story in America and the rest of Europe, where more people are ditching cars and congested public transport for a cheaper, cleaner and healthier way of getting to work. As Frank van Wijk, an analyst with SNS Securities in Amsterdam, says: "People see traffic jams and packed trams and consider bikes a good alternative and an environmentally friendly way of commuting."

But is the current two-wheel boom sustainable? Three developments suggest it is. First, the success of Paris's free bike scheme has shown other cities that bikes are a feasible form of public transport. Barcelona and Dublin have already copied the scheme, with free bikes spread across a city at regular intervals to dock and pick up. Secondly, if the last oil-price shock taught us anything, it's that when people's wallets protest loudly enough, they will change how they get from A to B. In 1979, distances cycled in Britain rose from a total of 4.6 billion km to 6.4 billion km by 1982, a 39% rise says CTC, the UK's cyclists' organisation. Today's rising bike sales suggest we are seeing a similar trend now.

The third positive development is driven by the bike industry itself. Taiwanese manufacturer Giant Corp has responded to growing demand for cheap and clean commuting with an option for the lazier biker the electric bike. It's a two wheeler powered by pedalling and when your legs get tired, a small electric motor kicks in. Sales in China alone, where e-bikes retail for about £700 a pop, have risen from ten million in 2005 to 21 million last year. In Europe, sales have also risen, with Holland-based Accell now Europe's biggest e-bike maker. Its new ION model can go up to 87 miles before its batteries need charging and the rider has to start pedalling, 17% farther than the next best model from Taiwan's Giant Corporation.

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It's not the first time that e-bikes have been tried, but this time they seem to be taking off. According to Van Wijk, it's down to the motors. "In the past everyone could see the motor on the side of the bike," he says. "That gave it a bad image. But now they're hidden." The number of electric-powered bikes sold in the Netherlands has nearly doubled from 45,000 in 2006 to 89,000 today, says BOVAG, a motorised vehicles industry association. That should hit 121,000 by the end of 2008; Bind Hilhirst, an analyst with AEK in Amsterdam reckons they will account for 10% of the total Dutch bicycle market by then. That's impressive growth in a country with 1.1 bikes per person. But can it catch on elsewhere?

Absolutely, says Van Wijk. Sales are just starting to take off in Germany, Europe's biggest bicycle market, but the "market [is] similar to the Netherlands", so penetration could well grow from its current 1.5%-2% to Dutch levels. Last year, sales of power-assisted bicycles hit 60,000 and ExtraEnergy, which promotes light electric vehicles in Germany, reckons that could double by the end of 2008. We look at a stock to benefit from the cycling boom below.

A play on the biking boom

Taiwan's Giant Corp is easily the world's biggest bicycle manufacturer, selling US$1bn worth of both push bikes and electric bikes last year. However, it's not easy for UK investors to buy Taipei-listed stocks, and in any case, the Netherlands's Accell (ACCEL:EU)looks a much more interesting play on the biking boom. Trading on a lowly forward p/e of 7.8, sales of e-bikes account for more than 10% of its total volumes. "Accell is the market leader in electric bikes" in Europe, says Bernd Hilhorst of AEK. In the first half of 2008, turnover grew 11% to €306m, lifted by rising sales of higher end products, and specifically e-bikes. Profit was also up 20% to e19.3m. One thing holding the group back has been that rising raw material costs would have a big impact on production costs. But with the aluminium price down 23% since July, this should be less of a concern, while the slowing global economy should see the price fall further.

Better yet, long-term trends favour Accell, which is 100% concentrated in bike design and manufacturing. Bicycle sales have risen by 14.6% in Europe in the past five years, says Bike Europe, while in America sales have risen by 9%. With life continuing to get more expensive, and governments still focused on green issues and congestion charging, these trends are only set to continue.