MANCHESTER UNITED
MATERIALS FOR
Table of Contents
• Executive Summary
• Consumer Industry Overview
• Company Considerations
–
Share price performance
–
Recent Corporate Actions
–
Operating Performance
–
Valuation
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
• Brand value – Chevrolet deal in FY 14
• Strong player base
• 650 m loyal fan base
Strengths
• Did not qualify for the Champions League
• New manager
• Poor playing performance
• No Nike Deal renewal
Weaknesses
• Champions league qualification next season
• Van Gaal
• Secured new contract with Wayne Rooney
Opportunities
• Brand value distraction
• Social media strategy underperformance
Threats
COMPANY
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
Financial Forecasts
EBIT & Margin (‘14-’18)
Profit & Margin (‘14-’18)
Sales & Growth (‘14-’18)
431.1
418.7
533.4
617.3
640
18.7%
-2.9%
27.4%
15.7%
3.7%
-5%
0%
5%
10%
15%
20%
25%
30%
200
300
400
500
600
700
2014E
2015E
2016E
2017E
2018E
Sales
Growth (%)
43.1
24.2
56.6
82.3
90.9
10%
6%
11%
13%
14%
0%
5%
10%
15%
0
20
40
60
80
100
2014E
2015E
2016E
2017E
2018E
Profit
Margin (%)
73.3
44.0
93.3
132.7
145.3
17.0%
10.5%
17.5%
21.5%
22.7%
5%
10%
15%
20%
25%
0
50
100
150
200
2014E
2015E
2016E
2017E
2018E
EBIT
Margin (%)
• 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
• 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
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 will
strengthen its debt capacity and
e n h a n c e c r e d i t r i s k f o r a n y
expansionary initiatives in the near
term
Net Debt / EBITDA
Debt / Equity
Net Debt / (Cash) - $M
319.2
258.2
248.4
209.3
133.5
2014E
2015E
2016E
2017E
2018E
1.97x
2.22x
1.60x
1.09x
0.65x
2014E
2015E
2016E
2017E
2018E
77%
73%
66%
58%
51%
Headline Operational Metrics
Follower Base by Region
Commercial Sales Development ($m)
Revenue Breakdown by Division
103
118
153
185
221
269
0
50
100
150
200
250
300
2011
2012
2013
2014
2015E
2016E
31%
30%
25%
22%
21%
18%
18%
37%
42%
43%
52%
51%
50%
49%
32%
28%
32%
26%
28%
32%
33%
0%
20%
40%
60%
80%
100%
2012
2013
2014
2015E
2016E
2017E
2018E
Matchday
Commercial
Broadcas>ng
•
650 m loyal fan base (50% Asia-‐Pacific)
•
Company is growing total sales at 15.7% in
FY17 and 3.7% in FY18
•
Commercial division is the fastest growing
segment -‐ will generate over 50% of total
sales in FY15
49%
11%
14%
26%
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
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 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
•
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
•
Applying different assumptions for terminal growth and WACC
our valuation ranges from $19,1-24,5
WACC (%)
21,6
8,6%
9,1%
9,6%
10,1%
10,6%
Terminal
Growth
(%)
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)
2013
2014
2015
2016
2017
2018
Terminal Period
Total Turnover
363
431
419
533
617
640
growth (%)
18,7%
-2,9%
27,4%
15,7%
3,7%
EBIT
62
73
44
93
133
145
margin (%)
17,1%
17,0%
10,5%
17,5%
21,5%
22,7%
Depreciation & Amortisation
119,0
88,5
72,6
61,8
58,9
59,9
Tax
(21,7)
(25,7)
(15,4)
(32,7)
(46,5)
(50,8)
Capital Expenditure
13,0
43,1
41,9
53,3
61,7
64,0
Capex/Sales (%)
-3,6%
-10,0%
-10,0%
-10,0%
-10,0%
-10,0%
Working Capital
0,0
(26,4)
0,5
(4,5)
(3,3)
(0,9)
Working Capital / Sales (%)
0,0%
6,1%
-0,1%
0,8%
0,5%
0,1%
Free Cash Flow
146,3
66,7
59,8
64,7
80,1
89,4
89,4
Discount Factor
0,91
0,83
0,76
0,69
0,63
0,63
Terminal Value
1 517
Present Value
60,82
49,78
49,15
55,54
56,54
959
Enterprise Value (m)
1 231
Net Debt as at (Dec 2013)
389
Market Capitalisation (m)
842
No. Shares (m)
39
Operating Assumptions
Sales
Actual
Actual
Actual
Forecast Forecast Forecast Forecast Forecast
2011
2012
2013
2014
2015
2016
2017
2018
Matchday
98,8
109,2
108,3
91,6
109,6
113,2
115,0
Commercial
117,5
152,5
185,8
216,8
273,7
309,1
315,0
Broadcasting
104
101,5
137,0
110,3
150,1
195,0
210,0
Total
320,3
363,2
431,1
418,7
533,4
617,3
640,0
13,4%
18,7%
-2,9%
27,4%
15,7%
3,7%
Divisional Revenue Split
Matchday
31%
30%
25%
22%
21%
18%
18%
Commercial
37%
42%
43%
52%
51%
50%
49%
Broadcasting
32%
28%
32%
26%
28%
32%
33%
Divisional Revenue Growth
Matchday
10,5%
-0,8%
-15,4%
19,7%
3,3%
1,6%
Commercial
29,8%
21,8%
16,7%
26,2%
12,9%
1,9%
Financial Assumptions
Manchester United Hist. Hist. Hist. Proj. Proj. Proj. Proj. Proj. Financial Assumptions 30.06.2011 30.06.2012 30.06.2013 30.06.2014 30.06.2015 30.06.2016 30.06.2017 30.06.2018
Income statement
Sales growth 13,4% 10,0%
COGS as % of sales 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 0,0%
Annual depr. as % of previous PPE 48,0% 35,0% 35,0% 35,0% 35,0% 35,0%
SG&A as % of sales 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 0,0%
Amortization of other intangibles amount 0,0 0,0 0,0 0,0 0,0 0,0 0,0
Non-recurring items amount 0,0 0,0 0,0 0,0 0,0 0,0 0,0
Effective tax rate 35,0% 35,0% 35,0% 35,0% 35,0%
Shareholder info
Diluted weighted average shares outstanding 155,4 163,8 163,8 163,8 163,8 163,8 163,8
Dividend per share growth rate (100,0%) 0,0% 0,0% 0,0% 0,0% 0,0%
Balance sheet: current assets
Accounts receivable as % of sales 23,2% 18,9% 18,9% 18,9% 18,9% 18,9% 18,9%
Inventories % of COGS 0,0% 0,0% 0,0% 0,0% 0,0%
Other current assets % of sales 0,3% 0,1% 0,0% 0,0% 0,0% 0,0% 0,0%
Balance sheet: non-current assets
Capital expenditures % of sales 0,0% 3,6% 10,0% 10,0% 10,0% 10,0% 10,0%
Other assets % of sales 5,4% 44,3% 44,3% 44,3% 44,3% 44,3% 44,3%
Balance sheet: liabilities
Accounts payable and accruals % of COGS 21,6% 15,0% 15,0% 15,0% 15,0% 15,0%
Other long-term liabilities % of sales 19,1% 15,5% 0,0% 0,0% 0,0% 0,0% 0,0%
Balance sheet: equity
end Common stock amount 249,7 318,1 318,1 318,1 318,1 318,1 318,1
Share repurchases $ amount (show as positive) 0,0 0,0 0,0 0,0 0,0
Debt (£/$ amount)
Loans due for repayment 0,0 0,0 0,0 0,0 0,0
Other long-term debt repayment 0,0 0,0 0,0 0,0 0,0
Interest Rate (%)
Short term debt 3,00% 3,00% 3,00% 3,00% 3,00%
Loans due for repayment 2,00% 2,00% 2,00% 2,00% 2,00%
Other long-term debt repayment 0,00% 0,00% 0,00% 0,00% 0,00%
Income Statement
Manchester United
Hist.
Hist.
Hist
Proj.
Proj.
Proj.
Proj.
Proj.
Income Statement
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 Sales
0,0
320,3
363,2
431,1
418,7
533,4
617,3
640,0
COGS
0,0
0,0
0,0
0,0
0,0
SG&A
(357,8)
(374,7)
(440,1)
(484,6)
(494,7)
EBIT
63,3
44,9
62,0
73,3
44,0
93,3
132,7
145,3
Depreciation
87,0
105,0
119,0
88,5
72,6
61,8
58,9
59,9
Amortization
0,0
0,0
0,0
0,0
0,0
EBITDA
161,8
116,6
155,2
191,6
205,2
Non-recurring items
0,0
0,0
0,0
0,0
0,0
Interest Income
0,8
0,9
1,2
1,5
2,1
Interest Expense
7,7
7,5
7,5
7,5
7,5
Profit before taxes
66,3
37,3
87,0
126,7
139,8
Taxes
3,3
23,2
13,1
30,5
44,3
48,9
Profit after tax
0,0
0,0
43,1
24,2
56,6
82,3
90,9
Net income
0,0
0,0
43,1
24,2
56,6
82,3
90,9
Shareholder information
Diluted weighted average shares
outstanding
155,4
163,8
163,8
163,8
163,8
163,8
163,8
Diluted earnings per share
$0,00
$0,00
$0,26
$0,15
$0,35
$0,50
$0,55
Dividends per share
$0,06
$0,00
$0,00
$0,00
$0,00
$0,00
$0,00
Balance Sheet
Manchester United
Hist. Hist. Hist. Proj. Proj. Proj. Proj. Proj.Balance Sheet
30.06.2011 30.06.2012 30.06.2013 30.06.2014 30.06.2015 30.06.2016 30.06.2017 30.06.2018Assets
Current assets
Cash and cash equivalents 70,6 94,4 58,3 119,3 129,1 168,2 244,0 Trade and other receivables 74,2 68,6 81,4 79,1 100,8 116,6 120,9
Current Tax receivables 2,5 0,0 0,0 0,0 0,0 0,0 0,0
Other current assets 1,0 0,3 0,0 0,0 0,0 0,0 0,0
Total current assets 148,2 163,3 139,8 198,4 229,9 284,8 364,9
Non-current assets Net PP&E 247,9 252,8 207,4 176,7 168,2 171,1 175,2 Goodwill 421,5 421,5 421,5 421,5 421,5 421,5 421,5 Other intangibles 112,4 119,9 119,9 119,9 119,9 119,9 119,9 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 15,6 11,8 0,0 0,0 0,0 0,0 0,0
Accounts payable and accruals 83,6 78,5 64,7 62,8 80,0 92,6 96,0 Accrued income taxes 128,5 146,3 146,3 146,3 146,3 146,3 146,3 Total current liabilities 227,8 236,5 211,0 209,1 226,3 238,9 242,3
Non-current liabilities
Total long-term debt 421,2 377,5 377,5 377,5 377,5 377,5 377,5
Other long-term liabilities 61,1 56,4 0,0 0,0 0,0 0,0 0,0
Total liabilities 710,1 670,4 588,4 586,6 603,8 616,4 619,8 Equity Common stock 249,7 318,1 318,1 318,1 318,1 318,1 318,1 Retained earnings (12,7) 129,8 172,9 197,2 253,8 336,1 426,9 Treasury stock 0,0 0,0 0,0 0,0 0,0 0,0 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
