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Spotlight on... Technogym

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Carried by a vibrant dynamism, the sport industry stood out within European Stock Exchanges in 2016, with several remarkable IPOs. Among them, Technogym appears to be on an upswing, primarily due to its early bet on the digital field. Explanations.

Alban Préaubert

The sports industry, which generates close to 2% of the world’s GDP, is a vibrant and resilient sector. With a 4% annual growth rate, the sector is clearly outperforming the global economy.

Robust fundamentals

Driven by powerful trends such as the expanding practice of amateur sports (over 40% of Europeans practice some form of sport at least once a week), the growth of the sports business, and the increasing uniformity of worldwide sporting practices, the industry exhibits solid fundamentals that will help sustain this positive momentum.

Furthermore, the virtuous impacts of sport are now well established, conferring a proven societal dimension to any investments in this area.

Historically considered as a key driver for social interaction, integration and education, sport also helps to address public health issues. Exercise improves our physical well-being, but also our quality of life and self-perception. It seems sport has a direct influence on absenteeism rates and on productivity (a 30% to 50% improvement according to some studies), which is encouraging an increasing number of companies to launch sporting programs.

In addition, the regular practice of sport reduces the risk of premature death by 30%. The promotion of sport therefore suggests potentially drastic cuts in the cost of healthcare.

A sporty year for the markets

In a world where well-being and quality of life are taking on increasing value, these different factors constitute powerful drivers for the entire sports industry.
In this respect, 2016 has been particularly intense for sport on the European stock market. Beyond the excellent performance recorded by Adidas – the European blue chip in this segment – we have been monitoring the IPOs of several companies, including Technogym, Abeo and Basic Fit, which have demonstrated the strength of the sector.

Unsurprisingly, the sector is not a cheap one. The average valuation multiple for the top 30 sports companies stands at 12x EBITDA, compared to an average of 7x (for all sectors). Nevertheless, we believe that the growth momentum observed in the sector justifies these valuations, with some companies still offering considerable potential upside.

Sycomore therefore initiated positions in several sports industry stocks in recent months, including Technogym.

The digital world, key to Technogym’s strategy

Technogym was listed on the stock market in April 2016. Founded in 1983, this Italian group has enjoyed remarkable growth, and now ranks second in the global fitness equipment market with a worldwide market share of almost 10%.

To drive this growth, the company opted for a premium position – and the quality of its workout machines, including their innovative design, is widely recognised.

The group has also been particularly proactive in the area of digitalisation and leveraged on the opportunities offered by connected equipment very early on. This positioning is now a key competitive advantage for the company, justifying a 35% premium on connected equipment over standard machines.

A further proof of the group’s focus on digitalisation is that a member of the executive committee is now responsible for the development of Technogym’s digital solutions, and has finalised the first external growth deal in the company’s history with the takeover of Exerp. Technogym will now be able to take its ‘wellness cloud’ even further – a concept introduced as early as 2012.

The group also offers differentiating solutions designed to limit the environmental impact of its products, with the Cardio Excite + franchise, a range that generates its own power using the energy of its users, but also the Still Novo line which gives the equipment a second life – machines are repaired by Technogym and then sold on at a discount.

Core ambition: to be an ambassador for wellnesss

Finally, in 2012, Technogym pooled together 12 manufacturing plants to create one fantastic site in Cesena (Italy). The “Technogym Village” is an incredible asset, at various levels: it offers environment-friendly infrastructure, an ideal location in which to welcome clients and convince them of the quality of the offer, but also a particularly pleasant work place for its employees. It is no surprise that its turnover ratio is particularly low, at less than 2%.

The group has also launched an innovative social campaign around the catchphrase "Let’s move for a better world"

These different factors should also allow the group to win new contracts in its key market and to increase its penetration in the United States – the largest fitness market – where it still has limited presence.

Under the leadership of its visionary founder Nerio Alessandri, who is still the majority-shareholder and CEO of the group, Technogym has managed its growth with the ambition of becoming a "wellness ambassador".
To achieve this, the group has launched the Wellness Foundation, a non-profit organisation which aims to improve people’s quality of life, and has set up the Wellness Valley Project around the Cesena site. This initiative is a network of individuals and organisations that seeks to promote wellness in the Italian Romagna region. And the group has also launched an innovative social campaign around the catchphrase "Let’s move for a better world". These different initiatives are a tangible reflection of the ambitious mission set by Technogym.

This publication is not intended to be an offer or solicitation for the purchase or sale of any financial instrument whatsoever. References to specific securities and issuers are for the purpose of illustration only and should not be construed as a recommendation to buy or sell these values. Communication promotional in nature. This communication has not been prepared in accordance with regulations to promote the independence of financial analysis. Sycomore Asset Management or management companies involved with the preparation of this document are not subject to the ban on conducting transactions on the instruments mentioned by the publication of this communication.

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