Ann: Strategic Review Update, page-22

Hi Bardot, sorry about the delayed response.

My view of Vmoto probably differs somewhat from most other shareholders. While this company tends to get lumped in with Tesla, my own feeling is that it is perhaps more of a 'commodity stock' than is generally appreciated, with the fortunes of the company particularly influenced by movements in the price of energy related commodities, most notably oil.

Going way back, this was a surfwear company, until June 2006 when the management of the day announced that they would be transforming into a hi-tech scooter company. If you read that initial acquisition announcement, it is interesting to note that the MD at the time made a specific comment about the high petrol price:

..."With record high prices at the petrol pump, scooters are becoming a very attractive alternative to motor vehicles to a growing number of people.'"

Although more than a decade has passed since this announcement, I suspect that fundamental drivers of this company haven't changed all that much, and as such I'd guess that the share price is still heavily influenced by the price of energy commodities such as oil.

So, I think the poor performance of the company over the past few years is at least partly related to the depressed oil price we have seen over recent years.

Having said that, I don't think the low oil price is the only trend that has been working against the company. It looks like they have also been targeting the wrong market.

I've made this point before, and so I don't want to sound like a broken record, but the demographics of China do not look particularly attractive for any company looking to sell motorcycles there. The number of people in their twenties, thirties and forties in that country has been shrinking and this cohort will continue to shrink over the next decade or so.

I don't know why they were focused on China for so long: if your target market is shrinking, it means you have to work so much harder just to keep ahead. Surely there are greener pastures elsewhere.

Anyway, it took them a while, but the management have finally shifted away from China and are now targeting markets which I believe will prove to be more forgiving.

The transition to these new markets will take time, and I suspect the next 12 months will be challenging, but the demographic headwind should shift into a tailwind once the transition is complete.

A surge in the oil price and other energy related commodity prices would provide another tailwind. My own view is that the oil price is most likely headed in an upward trajectory from here, though there are still likely to be some bumps ahead.

If the management can mange to successfully to re-orientate the focus of the company to international markets, and the oil price turns in their favour, I am optimistic that this combo should power up the share price.