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 Us 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 companys 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 companys 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 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)
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 Us 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 eciency improvements
Key Financial Metrics - Gearing Man Us gearing will continue to
reduce substantial ly over the forecast period from 1,97x to 0,65x in net debt / EBITDA
Improving financial position will strengthen its debt capacity and enhance c red i t r i sk fo r any expansionary initiatives in the near term
Net Debt / EBITDA
Debt / Equity Net Debt / (Cash) - $M
319.2 258.2 248.4
209.3
133.5
2014E 2015E 2016E 2017E 2018E
1.97x 2.22x
1.60x
1.09x
0.65x
2014E 2015E 2016E 2017E 2018E
77% 73% 66%
58% 51%
2014E 2015E 2016E 2017E 2018E
Headline Operational Metrics Follower Base by Region
Commercial Sales Development ($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-Pacic)
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%
Asia-Pacic Americas Europe MEA
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 Uniteds 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 FY15E EV/EBITDA multiple of 10,6x
Applying dierent assumptions for terminal growth and WACC our valuation ranges from $19,1-24,5
WACC (%)
21,6 8,6% 9,1% 9,6% 10,1% 10,6%
Terminal Growth
(%)
2,0% 20,6 18,4 16,4 14,7 13,2
2,5% 22,7 20,1 17,9 16,0 14,3
3,0% 25,1 22,1 19,6 17,5 15,6
3,5% 28,0 24,5 21,6 19,1 17,0
4,0% 31,5 27,3 23,9 21,1 18,6
4,5% 35,9 30,8 26,7 23,3 20,5
5,0% 41,5 35,1 30,1 26,1 22,8
Discounted Cash Flow Analysis Financial Year (Dec. Year end) 2013 2014 2015 2016 2017 2018 Terminal Period
Total Turnover 363 431 419 533 617 640 growth (%) 18,7% -2,9% 27,4% 15,7% 3,7% EBIT 62 73 44 93 133 145 margin (%) 17,1% 17,0% 10,5% 17,5% 21,5% 22,7% Depreciation & Amortisation 119,0 88,5 72,6 61,8 58,9 59,9 Tax (21,7) (25,7) (15,4) (32,7) (46,5) (50,8) Capital Expenditure 13,0 43,1 41,9 53,3 61,7 64,0 Capex/Sales (%) -3,6% -10,0% -10,0% -10,0% -10,0% -10,0% Working Capital 0,0 (26,4) 0,5 (4,5) (3,3) (0,9) Working Capital / Sales (%) 0,0% 6,1% -0,1% 0,8% 0,5% 0,1% Free Cash Flow 146,3 66,7 59,8 64,7 80,1 89,4 89,4 Discount Factor 0,91 0,83 0,76 0,69 0,63 0,63 Terminal Value 1 517 Present Value 60,82 49,78 49,15 55,54 56,54 959 Enterprise Value (m) 1 231 Net Debt as at (Dec 2013) 389 Market Capitalisation (m) 842 No. Shares (m) 39 Share Price ($) 21,6
APPENDIX
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%
Broadcasting -2,4% 35,0% -19,5% 36,1% 29,9% 7,7%
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% Cash 1,00% 1,00% 1,00% 1,00% 1,00%
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 Dividends 10,0 0,0 0,0 0,0 0,0 0,0 0,0
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 30.06.2018 Assets 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
Balance? OK OK OK OK OK OK OK
Cash Flow Statement Manchester United Hist. Hist. Hist. Proj. Proj. Proj. Proj. Proj.
Cash Flow 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 Income 43,1 24,2 56,6 82,3 90,9 Depreciation 87,0 105,0 119,0 88,5 72,6 61,8 58,9 59,9 Amortisation 0,0 0,0 0,0 0,0 0,0 Change in OWC (26,4) 0,5 (4,5) (3,3) (0,9) Change in other assets (30,1) 5,5 (50,8) (37,1) (10,0) Change in other liabilities (56,4) 0,0 0,0 0,0 0,0 Cash from Operating Activities 18,8 102,8 63,2 100,8 139,8
Capex 43,1 41,9 53,3 61,7 64,0 Cash from Investing Activities -43,1 -41,9 -53,3 -61,7 -64,0
Change in Common Stock 0,0 0,0 0,0 0,0 0,0 Change in Treasury Stock 0,0 0,0 0,0 0,0 0,0 Dividends 0,0 0,0 0,0 0,0 0,0 Long Term Debt Repayment 0,0 0,0 0,0 0,0 0,0 Cash from Financing Activities (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 82,7 58,3 119,3 129,1 168,2 Ending Cash 82,7 58,3 119,3 129,1 168,2 244,0
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