On your Bike – Shimano and Cycling

Responsible Investment

Between the UEFA European Football Championships, the familiar rain spattered elegance of Wimbledon and the looming Paris Olympics, we have been spoilt with a surfeit of summer sport. But over on the continent perhaps the most grueling, demanding of all sporting events is currently unfurling in operatic fashion: the Tour De France.

 

This legendary race typically covers over 3000km and isn’t across gentle terrain. The riders tackle brutal climbs on the Pyrenees, the Alps, facing gradients of more than 20 degrees, burning as many as 8,000 calories a day, all in the face of fierce summer heat, occasional downpours, and even the odd fan interruption. It is certainly not for the faint hearted.

 

But bikes have uses simultaneously far more mundane, but ultimately more important, than the completion of an epically long race. Cycling is a fantastic way to improve individual health, whilst at the same time lightening humanity’s environmental footprint.

 

On the health front, cycling is a great way to improve cardiovascular health, reducing the risk of heart disease, strokes, and even type 2 diabetes, all amongst the biggest causes of modern mortality. Better health is an innate individual good, but the economic impacts of a healthier population are also remarkable. The American Heart Association estimates that physical inactivity costs the US healthcare system a staggering $337 billion annually, whilst a study by the Dutch National Institute for Public Health and the Environment found that cyclists averaged 1.4 fewer sick days per year compared to non-cyclists.

 

Donning some Lycra and saddling up could not only lighten the burden on our over-taxed healthcare systems, but it could ingratiate you with your employer through better attendance rates!

 

Moving from the health of the individual to that of the planet, efforts to decarbonize our economy and lifestyles have been underway for decades, with some notable successes, for example the European Union’s emissions have dropped 31% since 1990. The UK’s have dropped much further again. Cycling has a part to play in the ongoing global drive to decarbonize. Transportation is a major source of greenhouse gas emissions, contributing around 28% of US emissions. The carbon footprint of cycling one kilometer is usually in the range of 16 to 50 grams per km compared to 170 grams for a petrol car1.

 

We like investments in businesses that are providing solutions to vital, enduring challenges in the world. Because of the criticality of what they do, businesses like these should see sustained demand for their products and services across time. They should swim in bigger and bigger economic pools, and if they have differentiated products and services, with wide moats, they should be able to translate these bigger pools into larger profits, and better share price performance.

 

Cycling ticks those boxes; it enables people to live longer, healthier lives, which is a core human desire, and it helps protect the environment, which is a global necessity. Our investment in the cycling space is Shimano, the global leader in selling gears and brakes into the cycling industry, with a global market share of over 70%. Shimano is multiples larger than its nearest competitors, and this allows it to invest heavily in R&D, staying ahead of its rivals, making it famous for the safety, quality, and durability of its products.

 

As cycling grows in popularity across emerging markets, Shimano is set to capitalize on this growth too, and in recent quarters it has seen growth in China, where there is increased interest personal health and fitness.

 

Shimano is also positioning itself for new trends in the cycling market, for example e-bikes, where is has a strong component line-up, and indeed where its core competency of brakes is particularly necessary, because the increase weight of e-bikes requires powerful braking systems.

 

Shimano is a true global winner, enabling people to live healthier lives, whilst also protecting the health of the planet that we all depend on. It is certainly not a coincidence that of the 22 teams in the Tour De France this year, 18 are using Shimano Dura-Ace product, products built to weather perhaps the toughest sport of all.

The mention of any specific shares should not be taken as a recommendation to deal.

1 https://ourworldindata.org/travel-carbon-footprint

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