Manchester United Equity Story
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A short story documenting the outlook for Manchester United, one of the world's greatest football clubs from a busin...
Description
MANCHESTER UNITED MATERIALS FOR DISCUSSION
Table of Contents • Executive Summary • Consumer Industry Overview • Company Considerations – – – –
Share price performance Recent Corporate Actions Operating Performance Valuation
• Trade Idea
EXECUTIVE SUMMARY •
This presentation evaluates the consumer services industry in which Manchester United (“Man U”) operates
•
In this analysis, I have identified the fundamental drivers of the industry and company evaluate the intrinsic price of Man U’s shares using a fully integrated financial statements forecast model and discounted cash flow valuation
•
I have observed the following key drivers with respect to the company’s operating performance: – MANU Is revalidated its brand through successful long term annuity deal with Chevrolet despite not qualifying for the Champions League in FY15 – Expect the commercial segment to generate over 50% of sales over the next five years
•
Man U has continued to improve its financial position through operational and financial improvements – Traditional revenue streams will be overtaken by commercial segment which includes sponsorships and marketing – Gearing ratios expected to decline annually from FY14-18E
•
Over the last 12months, the company’s share price has remained stable relative to its consumer brands competitors including Tumi, Hermes and Michael Kors
•
On a DCF basis, the company is intrinsically valued at $21,6 per share. Manchester United shares are currently trading on the New York Stock Exchange at a discount: $18,7 per share implying potential value upside of 16,1%
CONSUMER INDUSTRY OVERVIEW
Company Description Manchester United is one of the most popular and successful sports teams in the world playing the most popular sport: football. The team was founded in 1878 and has a track record of success on the field which has led it to become a powerful brand with a global community of 659 million followers. This significant global community provides Manchester United with a worldwide platform to generate significant revenue from multiple sources including:
• • • • •
Sponsorship Merchandising, Product licensing, New media & mobile, broadcasting Matchday
Man U - Competitive Landscape High Growth Consumer Brands • • • • •
Hermes Under Armour Lululemon Michael Kors Tumi
Sponsorship Strengths Brand Ownership • Control of intellectual property and brand • Direct relationships with partners
Innovation of Rights • Broad sponsorship assets • New rights and platforms • Geographic segmentation to protect exclusivity
Data and Insights Driven Culture • Analytical framework • Independent data sources and verification • Fan data and segmentation, TV audience data, web analytics
Professional Approach • Rigorous prospecting and research • Premium sales packs and presentations • Professional marketing support
SWOT Analysis Strengths
Weaknesses
Opportunities
Threats
• Brand value – Chevrolet deal in FY 14 • Strong player base • 650 m loyal fan base • Did not qualify for the Champions League • New manager • Poor playing performance • No Nike Deal renewal • Champions league qualification next season • Van Gaal • Secured new contract with Wayne Rooney
• Brand value distraction • Social media strategy underperformance
COMPANY CONSIDERATIONS
Key Company Considerations • MANU Is revalidated its brand through successful long term annuity deal with Chevrolet • Expect the commercial segment to generate over 50% of sales over the next five years • Deleveraging: Man U continues to improve its capital structure • Social Media Strategy requires significant investment • Player wage growth inflation • Nike deal not renewed
Share Price Performance vs Competitors (Last 12 Months)
Financial Forecasts EBIT & Margin (‘14-’18) •
Sales is expected to rise y-o-y between FY14-18E from $432m to $640m owing to its strength in Man U’s commercial segment
EBIT 200
•
Profitability margins are expected to improve from 17,0% to 22,7% in EBIT and expand to 14% in Net Income over the period due to efficiency improvements
17.0% 73.3
44.0 10.5%
50
Sales
5% 2014E
600 500
25% 20%
18.7% 15.7%
418.7
400
2014E
2015E
2016E
10%
40
-5%
2017E
2018E
2018E
Margin (%) 82.3 13%
80 60
0%
-2.9%
200
2017E
100
15% 3.7% 5%
300
2016E
Profit 30%
640
533.4 431.1
2015E
Profit & Margin (‘14-’18)
Growth (%) 27.4% 617.3
10%
0
Sales & Growth (‘14-’18) 700
25% 22.7% 145.3 132.721.5% 20% 17.5% 93.3 15%
150 100
Margin (%)
90.9 15% 14%
56.611%
10%
10%
43.1 24.26%
5%
20 0
0% 2014E
2015E
2016E
2017E
2018E
Key Financial Metrics - Gearing •
•
Man U’s gearing will continue to reduce substantially over the forecast period from 1,97x to 0,65x in net debt / EBITDA Improving financial position strengthen its debt capacity enhance credit risk for expansionary initiatives in the term
Net Debt / EBITDA 2.22x 1.97x 1.60x 1.09x
will and any near
0.65x
2014E
Net Debt / (Cash) - $M 319.2 258.2
2016E
2017E
2018E
Debt / Equity 77%
248.4
2015E
73%
66%
209.3
58%
51%
133.5
2014E
2015E
2016E
2017E
2018E
2014E
2015E
2016E
2017E
2018E
Headline Operational Metrics Follower Base by Region
• 650 m loyal fan base (50% Asia-‐Pacific)
Asia-‐Pacific
• Company is growing total sales at 15.7% in FY17 and 3.7% in FY18
26%
• Commercial division is the fastest growing segment -‐ will generate over 50% of total sales in FY15 Revenue Breakdown by Division Matchday
Commercial
80%
32%
60% 40% 20%
37%
42%
32%
26%
43%
52%
28%
11%
33%
Commercial Sales Development ($m) 269
51%
50%
49%
31%
30%
25%
22%
21%
18%
18%
2012
2013
2014
2015E
2016E
2017E
2018E
221 185
150 100
0%
49%
200 32%
MEA
250
100% 28%
Europe
14%
300
Broadcas>ng
Americas
153 103
118
50 0 2011
2012
2013
2014
2015E
2016E
Sponsorship Deal History Announced Date
Term
Comments
Value
BSkyB and British Telecom Announced in July 2012
2 years from 2014
70% higher than previous deal of £1.77B
£3.0B
GM Chevrolet Announced 7/30/12, for start of the 2014/15 season
7 year term
Shirt Future Sponsor
£45m/year
AON Announced 5/24/09, for start of the 2010/11 season
4 year term
Shirt Current Sponsor
£20m/year
Nike 13-year contract was signed in 2001
Renew the contract
Previous Kit Sponsor
£25M/year
TRADE IDEA
Valuation Considerations •
To evaluate the fundamental value of Manchester United’s shares, I have built a 5-year discounted cash flow forecast for FY14-18E, incorporating my key assumptions about the future potential of the company
•
Key • • • •
•
On a DCF basis, the company is intrinsically valued at $21,6. Manchester United shares are currently trading on the New York Stock Exchange at a discount: $18,7 per share (upside of 16,1%) • This implies FY’15E EV/EBITDA multiple of 10,6x
assumptions used include: WACC: 9,6% Long-term growth rate: 3,5% Net Debt Position as at 30 June 2013: $389m No. outstanding shares: 39m
WACC (%)
21,6
•
Applying different assumptions for terminal growth and WACC our valuation ranges from $19,1-24,5 Terminal Growth (%)
8,6%
9,1%
9,6%
10,1%
10,6%
2,0%
20,6
18,4
16,4
14,7
13,2
2,5%
22,7
20,1
17,9
16,0
14,3
3,0%
25,1
22,1
19,6
17,5
15,6
3,5%
28,0
24,5
21,6
19,1
17,0
4,0%
31,5
27,3
23,9
21,1
18,6
4,5%
35,9
30,8
26,7
23,3
20,5
5,0%
41,5
35,1
30,1
26,1
22,8
Discounted Cash Flow Analysis Financial Year (Dec. Year end) Total Turnover growth (%) EBIT margin (%) Depreciation & Amortisation Tax Capital Expenditure Capex/Sales (%) Working Capital Working Capital / Sales (%) Free Cash Flow Discount Factor Terminal Value Present Value Enterprise Value (m) Net Debt as at (Dec 2013) Market Capitalisation (m) No. Shares (m) Share Price ($)
2013 363
2014 431 18,7%
2015 419 -2,9%
2016 533 27,4%
2017 617 15,7%
2018 640 3,7%
62 17,1%
73 17,0%
44 10,5%
93 17,5%
133 21,5%
145 22,7%
119,0
88,5
72,6
61,8
58,9
59,9
Terminal Period
(21,7) 13,0 -3,6%
(25,7) 43,1 -10,0%
(15,4) 41,9 -10,0%
(32,7) 53,3 -10,0%
(46,5) 61,7 -10,0%
(50,8) 64,0 -10,0%
0,0 0,0%
(26,4) 6,1%
0,5 -0,1%
(4,5) 0,8%
(3,3) 0,5%
(0,9) 0,1%
146,3
66,7
59,8
64,7
80,1
89,4
0,91
0,83
0,76
0,69
0,63
89,4 0,63 1 517
60,82 1 231 389 842 39 21,6
49,78
49,15
55,54
56,54
959
APPENDIX
Operating Assumptions Sales Matchday Commercial Broadcasting
Actual 2012 98,8 117,5 104
Actual 2013 109,2 152,5 101,5
Total
320,3
363,2 13,4%
431,1 18,7%
418,7 -2,9%
533,4 27,4%
617,3 15,7%
640,0 3,7%
31% 37% 32%
30% 42% 28%
25% 43% 32%
22% 52% 26%
21% 51% 28%
18% 50% 32%
18% 49% 33%
10,5% 29,8% -2,4%
-0,8% 21,8% 35,0%
-15,4% 16,7% -19,5%
19,7% 26,2% 36,1%
3,3% 12,9% 29,9%
1,6% 1,9% 7,7%
Divisional Revenue Split Matchday Commercial Broadcasting
Divisional Revenue Growth Matchday Commercial Broadcasting
Actual 2011
Forecast Forecast Forecast Forecast Forecast 2014 2015 2016 2017 2018 108,3 91,6 109,6 113,2 115,0 185,8 216,8 273,7 309,1 315,0 137,0 110,3 150,1 195,0 210,0
Financial Assumptions Manchester United Financial Assumptions Income statement Sales growth COGS as % of sales Annual depr. as % of previous PPE SG&A as % of sales Amortization of other intangibles amount Non-recurring items amount Effective tax rate Shareholder info Diluted weighted average shares outstanding Dividend per share growth rate Balance sheet: current assets Accounts receivable as % of sales Inventories % of COGS Other current assets % of sales Balance sheet: non-current assets Capital expenditures % of sales Other assets % of sales Balance sheet: liabilities Accounts payable and accruals % of COGS Other long-term liabilities % of sales Balance sheet: equity
end
Common stock amount Share repurchases $ amount (show as positive) Debt (£/$ amount) Loans due for repayment Other long-term debt repayment Interest Rate (%) Short term debt Loans due for repayment Other long-term debt repayment Cash
Hist. 30.06.2011
Hist. 30.06.2012
0,0% 0,0% 0,0 0,0
Hist. 30.06.2013 13,4% 0,0% 48,0% 0,0% 0,0 0,0
Proj. 30.06.2014
Proj. 30.06.2015
Proj. 30.06.2016
Proj. 30.06.2017
Proj. 30.06.2018
0,0% 35,0% 0,0% 0,0 0,0 35,0%
0,0% 35,0% 0,0% 0,0 0,0 35,0%
0,0% 35,0% 0,0% 0,0 0,0 35,0%
0,0% 35,0% 0,0% 0,0 0,0 35,0%
10,0% 0,0% 35,0% 0,0% 0,0 0,0 35,0%
155,4
163,8 (100,0%)
163,8 0,0%
163,8 0,0%
163,8 0,0%
163,8 0,0%
163,8 0,0%
23,2%
18,9%
0,3%
0,1%
18,9% 0,0% 0,0%
18,9% 0,0% 0,0%
18,9% 0,0% 0,0%
18,9% 0,0% 0,0%
18,9% 0,0% 0,0%
0,0% 5,4%
3,6% 44,3%
10,0% 44,3%
10,0% 44,3%
10,0% 44,3%
10,0% 44,3%
10,0% 44,3%
21,6%
15,0%
15,0%
15,0%
15,0%
15,0%
19,1%
15,5%
0,0%
0,0%
0,0%
0,0%
0,0%
249,7
318,1
318,1 0,0
318,1 0,0
318,1 0,0
318,1 0,0
318,1 0,0
0,0 0,0
0,0 0,0
0,0 0,0
0,0 0,0
0,0 0,0
3,00% 2,00% 0,00% 1,00%
3,00% 2,00% 0,00% 1,00%
3,00% 2,00% 0,00% 1,00%
3,00% 2,00% 0,00% 1,00%
3,00% 2,00% 0,00% 1,00%
Income Statement Manchester United Income Statement Net Sales COGS SG&A EBIT Depreciation Amortization EBITDA
Hist.
Hist.
Hist
Proj.
Proj.
Proj.
Proj.
Proj.
30.06.2011 0,0
30.06.2012 320,3
30.06.2013 363,2
63,3
44,9
62,0
30.06.2014 431,1 0,0 (357,8) 73,3
30.06.2015 418,7 0,0 (374,7) 44,0
30.06.2016 533,4 0,0 (440,1) 93,3
30.06.2017 617,3 0,0 (484,6) 132,7
30.06.2018 640,0 0,0 (494,7) 145,3
87,0
105,0
119,0
88,5 0,0 161,8
72,6 0,0 116,6
61,8 0,0 155,2
58,9 0,0 191,6
59,9 0,0 205,2
0,0 0,8 7,7 66,3
0,0 0,9 7,5 37,3
0,0 1,2 7,5 87,0
0,0 1,5 7,5 126,7
0,0 2,1 7,5 139,8
Non-recurring items Interest Income Interest Expense Profit before taxes Taxes Profit after tax Net income Shareholder information Diluted weighted average shares outstanding Diluted earnings per share Dividends per share Dividends
0,0
3,3 0,0
23,2 43,1
13,1 24,2
30,5 56,6
44,3 82,3
48,9 90,9
0,0
0,0
43,1
24,2
56,6
82,3
90,9
155,4 $0,00 $0,06 10,0
163,8 $0,00 $0,00 0,0
163,8 $0,26 $0,00 0,0
163,8 $0,15 $0,00 0,0
163,8 $0,35 $0,00 0,0
163,8 $0,50 $0,00 0,0
163,8 $0,55 $0,00 0,0
Balance Sheet Manchester United Balance Sheet
Hist.
Hist.
Hist.
Proj.
Proj.
Proj.
Proj.
Proj.
30.06.2011
30.06.2012
30.06.2013
30.06.2014
30.06.2015
30.06.2016
30.06.2017
30.06.2018
Assets Current assets Cash and cash equivalents Trade and other receivables Current Tax receivables Other current assets Total current assets
70,6 74,2 2,5 1,0 148,2
94,4 68,6 0,0 0,3 163,3
58,3 81,4 0,0 0,0 139,8
119,3 79,1 0,0 0,0 198,4
129,1 100,8 0,0 0,0 229,9
168,2 116,6 0,0 0,0 284,8
244,0 120,9 0,0 0,0 364,9
Non-current assets Net PP&E Goodwill Other intangibles
247,9 421,5 112,4
252,8 421,5 119,9
207,4 421,5 119,9
176,7 421,5 119,9
168,2 421,5 119,9
171,1 421,5 119,9
175,2 421,5 119,9
Other assets
17,2
160,8
190,9
185,4
236,1
273,3
283,3
Total assets
947,1
1 118,3
1 079,4
1 101,8
1 175,6
1 270,5
1 364,8
Liabilities Current liabilities Short term debt Accounts payable and accruals Accrued income taxes Total current liabilities
15,6 83,6 128,5 227,8
11,8 78,5 146,3 236,5
0,0 64,7 146,3 211,0
0,0 62,8 146,3 209,1
0,0 80,0 146,3 226,3
0,0 92,6 146,3 238,9
0,0 96,0 146,3 242,3
Non-current liabilities Total long-term debt Other long-term liabilities Total liabilities
421,2 61,1 710,1
377,5 56,4 670,4
377,5 0,0 588,4
377,5 0,0 586,6
377,5 0,0 603,8
377,5 0,0 616,4
377,5 0,0 619,8
Equity Common stock Retained earnings Treasury stock
249,7 (12,7) 0,0
318,1 129,8 0,0
318,1 172,9 0,0
318,1 197,2 0,0
318,1 253,8 0,0
318,1 336,1 0,0
318,1 426,9 0,0
Total equity
237,0
448,0
491,0
515,3
571,9
654,2
745,0
Total Liab.& Equity
947,2
1 118,3
1 079,5
1 101,9
1 175,6
1 270,6
1 364,8
OK
OK
OK
OK
OK
OK
OK
Balance?
Cash Flow Statement Manchester United Cash Flow Statement
Hist.
Hist.
Hist.
Proj.
Proj.
Proj.
Proj.
Proj.
30.06.2011 30.06.2012 30.06.2013 30.06.2014 30.06.2015 30.06.2016 30.06.2017 30.06.2018
Net Income Depreciation 87,0 Amortisation Change in OWC Change in other assets Change in other liabilities Cash from Operating Activities
43,1 88,5 0,0 (26,4) (30,1) (56,4) 18,8
24,2 72,6 0,0 0,5 5,5 0,0 102,8
56,6 61,8 0,0 (4,5) (50,8) 0,0 63,2
82,3 58,9 0,0 (3,3) (37,1) 0,0 100,8
90,9 59,9 0,0 (0,9) (10,0) 0,0 139,8
Capex Cash from Investing Activities
43,1 -43,1
41,9 -41,9
53,3 -53,3
61,7 -61,7
64,0 -64,0
Change in Common Stock Change in Treasury Stock Dividends Long Term Debt Repayment Cash from Financing Activities
0,0 0,0 0,0 0,0 (0,0)
0,0 0,0 0,0 0,0 0,0
0,0 0,0 0,0 0,0 0,0
0,0 0,0 0,0 0,0 0,0
0,0 0,0 0,0 0,0 0,0
Net Cash Flow
(24,4)
61,0
9,8
39,1
75,8
Beginning Cash Ending Cash
82,7 58,3
58,3 119,3
119,3 129,1
129,1 168,2
168,2 244,0
105,0
119,0
82,7
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