American Motorcycle Dealer AMD 186 January 2015 | Page 4

WHAT HAS HARLEY GOT TO DO TO GET THEIR SHARE PRICE MOVING AGAIN? HREE months ago, in the October 2014 edition, I introduced a new analysis into the pages of AMD Magazine - an analysis of Harley-Davidson's share price performance relative to its dividend payments policies, and other factors. The idea at the time was to update it quarterly, and this month's AMD gives me the first opportunity to do that - having set a template for the analysis, it affords me a first opportunity for a quarterly re-visit and update. Coinciding, as it does (again), with the edition in which we also present the latest in the Harley-Davidson dealer surveys conducted by long established Milwaukee based analyst and fund manager R.W. Baird, those "other factors" included tracking share price performance relative to new model introductions, and in the case of the first such exercise in October 2014, the share price response to the MY2015 announcement in August this year, and how that compared or contrasted with the much hyped 'Project Rushmore' MY 2014 launch announcement in August 2013. One of the principal reasons for starting this series of reports was the concern, reported and commented on several times in AMD Magazine in 2014, that Harley-Davidson's apparently (good, but) moribund share price makes them vulnerable to unwelcome take-over approaches. The M&A culture of these (theoretically) post-recession years is different to that which dominated in the 30 years that brought us to the brink of the precipice in September 2008 - different in that it is woefully similar to the culture which existed before, paradoxically, but now "even more so" in terms of the activist investor time-scale intolerance for anything short of extraordinary results delivered at warp speed. It is Nineties and Noughties M&A culture brought to us by prescription drugs rather than white powder - theoretically legal, but no less bending of corporate realities and corporate space time! Another "other factor" I introduced into this second report is a statement, for the record and for reference, about Harley-Davidson's market share performance since 2008 (see page 16). Based on the one recorded by Baird in the quarterly AMD/Baird dealer survey, it is designed to add to a suite of "key indicators" that I will develop for quarterly updating, a subtlety nuanced suite that exploits the perspective that can only come from being inside the motorcycle market, rather than the one that is determined by the blinkers of balance sheet and bean counting perspectives alone. Putting Harley-Davidson's share price performance, and the current apparent malaise that sees it stubbornly resisting the $70.00 threshold, in the context of T market share performance in terms of actually bashing metal and selling product casts interesting light on the take-over dangers the Motor Company may be vulnerable to at this time. Harley-Davidson's share price was in dramatic decline from its November 2006 $74.65 high when selling just under 220,000 units for an 8.9 percent market share in 2008. In fact at that time the share price opened that year at around $43.00 and was south of $20.00, and headed for its March '09 low of $8.20. This, of course, was driven by the Lehman effect and a balance sheet and P&L picture that was pure Bob Dylan ... "Blood on the Tracks"! That was despite the fact that the quarterly dividend that investors were enjoying in 2008 was the highest that the company had ever paid at some $0.330c per share. One of the "dark arts" of capitalist excellence is to be able to make more from less. A practice that pretty much every motorcycle business of every kind has had to become expert at in the past six years. Yet despite the fact that Harley-Davidson's in-class domestic U.S. market share performance is now running at around 55 percent, proportionately some 35 percent more than was the case when they were scoring 41.6 percent in a substantially larger market than we have now, and despite the fact that the dividend that is being paid now is proportionately substantially higher when considered in relation to that market share performance, investor sentiment remains profoundly sluggish. That is why Harley is vulnerable. Internationally Harley's market share performance is even more dramatic. The European market (especially) has been in the doldrums for a lot longer, and a lot deeper, than has been the case in the United States. To give you an idea, a market worth nearly 3m total PTWs (Powered Two Wheelers) as recently as 2006/2007, with close-out this year at around 1.2 or 1.3m units. Yet Harley's in-class share of that market has steepled from 8.9 percent in 2008 to an unprecedented 12.8 percent in 2013. If Harley can't get their share price moving again soon, get it past its historic high and onwards and upwards, then it will take more than stock splits and dividend growth to fight off potential predators. that is why Harley is vulnerable Robin Bradley Co-owner/Editor-in-Chief [email protected]