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Tuesday, 9 August 2016

Comment by Editor-in-Chief, Robin Bradley

The ‘blip’ that launched a thousand blogs

The 07/01 blip.” This was the 24-hour wonder that numerous motorcycle industry, mainstream and financial blogs and financial analyst reports assumed was the start of a raid on Harley shares that signalled an imminent take-over attempt.
The context was that the Harley share price shot up by some 20 percent from its June 30 close at around $45.00 to peak at $54.20 on Friday July 1; only to drop back to $48.37 when trading re-opened after the July 4 holiday weekend in the United States on Tuesday July 5.
As this edition of AMD Magazine went to press (July 15), Harley shares were trading at around $48.10.

“Harley allowed a vacuum to develop”

The time-honoured phrase “Context is King” is as true in journalism and financial analysis as it is in the study of history – from where the phrase originates. When the shares started to head north, hundreds of reports started to appear about it – some as simple investor alerts, some as full blown attempts at trying to uncover the fire beneath the smoke.
But all were way off-beam. That’s not to say that a buy-out isn’t on the cards, of course. I for one have been banging that drum for some three years now, ever since the initially warm response to Project Rushmore turned into radio silence where Harley model range innovation is concerned.
It is perfectly feasible that the share purchases that fuelled the spike were indeed by an investor looking to start laying down a percentage ownership share (or adding to an existing one) by way of a springboard for a future, more substantial raid.
All share transactions are a matter of public record, so if it wasn’t for the fact that I am currently enjoying a classic English summer of cricket, Pimm’s (Google it!) and rain, then I would have done so myself, and at this point be able to impress with the profundity and detail of my knowledge.
But the fact of the matter is that it doesn’t really matter who did what to lead the forces of informed reporting astray, because it is the fact that it shows just what a hair trigger Harley’s independence is regarded as being on, and it is in that market perception that the true significance of the July 1 event is to be found.
There is a widespread perception that, undervalued though it maybe, Harley’s share price performance this past 24 months has left them vulnerable, wide open indeed, to raiders who are eying that low price in relation to the shareholder value that Milwaukee continues to deliver as the Motor Company tries to pimp itself.
I personally resisted the temptation to get some reporting out on the “blip”, specifically because I wanted to wait and see some context. Public holiday weekends are notorious as occasions when a certain breed of opportunist investors will have a go at an under-performing, under-valued stock with a view to offloading just as quickly as they climbed in, and while the activities of someone with rather deeper aims cannot be ruled out, that is most likely exactly what happened.
However, the underlying issues remain “as was is”. With Harley’s second quarter fiscals due for release the week after this edition of AMD Magazine went to press, and with the MY2017 announcements being only a matter of a few weeks away, we can expect the atmosphere surrounding Harley’s share price to remain volatile until it is seen whether 2017 is just another paint-job, or is the much needed platform evolution that is overdue.
What happens then, in the context of the reasons for the ongoing volatility and response to the model year announcements, will be critical to Harley’s future.
The US stock markets are not sentimental. Neither do they understand the concept of “long-term” to be anything much beyond 12 months. If a stock hasn’t addressed its issues in that time or shown purely fiscal reasons as to why further patience is warranted, then one can generally expect to see wholesale sell-offs, with equity investors licking their lips at the prospects for a high profile bargain.
A few months ago I wrote extensively about the malaise Harley finds itself in with regards to its platform strategy. Having allowed a vacuum to develop, a vacuum that competitors are only too happy to exploit, the company cannot expect anything other than a significant backlash from dealers, investors and consumers if there isn’t convincing evidence in the MY2017 that Harley “gets it”.
They must clearly and robustly signal that they understand where the market is headed, and that they realize that their existing platforms, the Big Twins especially, are not just time limited, but increasingly being regarded as obsolete.
The Tourers and the Sportsters, while not exactly “future facing”, are in a better place than the Softails and Dynas, but none of the existing platforms speak to the opportunities that will characterize the market in the next two decades.
Harley must also make sure that their new platforms (please let it be plural!) are additionals, not alternates, and allow their dealers greater latitude in selecting numbers.
After all, Matt Levatich (Chief Executive Magazine’s “Leadership in Manufacturing” award recipient this year) has made much about Harley’s need to be a more responsive, versatile and opportunity driven manufacturer, so, hopefully, he’ll have been brave enough to eschew the received wisdom that product diversity can reduce focus and, initially, throw as many options onto showroom floors as possible and tune production according to dealer feedback.
Otherwise expect those motorcycle industry and financial community blogs this time to have some fire to find under the smoke as speculation gives way to fact, and independence potentially gives way to being someone’s squeezed cash cow.