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Today, I want to take a closer look Manchester United (NYSE:MANU) shares — this is the first time I’ve found an excuse to write about football.
As many investors will know, United’s New York-listed shares have been pushed higher by the prospect of a takeover. So let’s take a look at this stock.
great yield
If I had bought £100 of Manchester United shares a year ago, I would now have £202. The stock is up 101% in 12 months.
All these gains have come in recent months following the announcement by the owners, the Glazer family, that they will be selling the club.
On-the-pitch performance is no different – at least mid-season.
Takeover offer
After months of speculation, we saw some real movement on Friday, as two bidding groups placed confirmed bids for the club ahead of Glazer’s deadline.
On one side we have Sheikh Jassim Bin Hamad Al Thani of Qatar – son of the Emir of Qatar, Sheikh Hamad bin Khalifa Al Thani – a United fan with Qatari money. This offer seems to be the favorite, so far.
Then there is Sir James Ratcliffe’s INEOS group. He is also a United fan (although he is also a Chelsea season ticket holder). And as Ratcliffe’s bid hinges on debt, INEOS appears to be second favourite.
Football teams are often fueled by cash. But that hasn’t stopped them changing hands for billions – just look at Chelsea and AC Milan last summer. And talk of a multi-billion pound takeover has grown with United up for sale, Liverpool open to investment, and Spurs owner Joe Lewis putting a £4.5bn price tag on the North London club.
But, it’s not just football. There are more than $15bn in deals for pro-sports clubs in 2022 – more than a year on record. Sports are obviously big business.
But respecting a sports club, especially a football club, can be a challenge. Companies are usually valued on future earnings. Working with future cash flow forecasts for the next 10 years, investors can determine how much they will pay for the company today.
Football is different. The club regularly loses money, and when there is a profit, you often hear fans demanding reinvested money, usually in the form of transfers. So how do clubs achieve these valuation figures?
Markham’s Multivariate Model is one way to value football clubs.
| Club value = (Revenue + Net Assets) x [(Net Profit + Revenue) ÷ Revenue] x (% stadium filled) / (% wage ratio) |
But this model is not perfect. Using metrics, Liverpool – my favorite – is worth £1.2bn, according to analysis from valuation experts. But it is less than £4bn the owner of Fenway Sports valued at.
English football is unstable – more so than the American NFL where regulation is less of a threat and TV revenues are more flat. However, I believe the English club offers huge growth potential, despite the risks associated with performance. The Premier League is increasingly resembling the proposed ‘Super League’. Growing revenue and fan base.
And there is more to monetise. United have a reported fan base of a billion people, but they only generate £600m, in revenue every year. There’s promise here, even if United can’t sell London-priced tickets.
If I wasn’t a Liverpool supporter, I’d buy shares in Manchester United.
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