Manchester United (NYSE:MANU) was recently reported to be the most valuable football — that’s soccer for Americans — club in the world. According to data compiled by Sportico, Manchester United is valued at $6.2 billion. However, with the club’s U.S.-listed shares trading around $16.92 after their recent dip, the market only values Manchester United at $2.8 billion. Football is a strange business, but I’m fairly bullish on Manchester United stock, given the club’s turnaround project, long-term revenue growth, and buyout potential. This could be a dip worth buying.
Jim Ratcliffe’s Manchester United Investment
Manchester United shares have demonstrated considerable volatility over the past 12 months, as you can see below. The club was the subject of months of takeover speculation, with a Qatari consortium led by Sheikh Jassim bin Hamad al Thani and INEOS CEO Jim Ratcliffe as the leading candidates.
For many investors, Sheikh Jassim’s proposal looked most favorable. It was understood that the Shiekh’s bid was for all of the Glazer family’s shares and potentially those shares listed in the U.S. — 100% of the club. With a potential buyout of the listed shares on the cards, the stock pushed upwards, reaching highs around $27.
However, that wasn’t the Glazer family’s preferred offer, and we eventually saw Ratcliffe acquire 25% of the club, which has subsequently increased to 28%. The Glazer family currently owns 49.9% of the total outstanding shares.
Moreover, as Ratcliffe’s investment meant very little to retail investors, the stock eventually fell. Manchester United shares have traded as low as $13.50.
Is There Value in Manchester United Stock?
Valuing football clubs is very challenging. These are not profit-making organizations, with Manchester United notching up five loss-making quarters out of the last eight. Given the football culture in Europe and the UK, fans wouldn’t be happy to see their clubs turned into profit-making machines. Instead, clubs are seen as community vehicles and something that should be run for the fans, reflecting the working-class roots of the modern league.
The Markham Multivariate Model is a metric — arising from a Master thesis — that was developed in 2013 to provide a method for valuing football clubs. However, when I was covering the stock a year ago, the model suggested United was worth just £857 million, far less than the $7.4 billion the Glazer family wanted for the club. The metric goes as follows:
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Club value = (Revenue + Net Assets) x [(Net Profit + Revenue) ÷ Revenue] x (% stadium filled) / (% wage ratio) |
Yes, the model doesn’t take into account growth trajectories — one of the most important things when valuing stocks, in my opinion — but it also sheds light on the disparities between valuations.
There are lots of things to consider when valuing a football club. European football teams can be relegated — there are 20 tiers of English football — and things like qualifications for the lucrative UEFA Champions League have a huge impact on revenue. As such, the performance of the team on the pitch is very important. Will English Premier League teams ever reach the type of valuations U.S. sports teams are afforded? It’s highly unlikely because of the jeopardy of regulation and non-qualification for tournaments.
That’s not to say that valuations can’t expand, however. The Premier League’s income from broadcasting rights is growing, while commercial and matchday revenues are very much dependent on the club’s success and strategic decisions.
Manchester United’s valuation metrics don’t scream “value.” After all, it’s not set to turn a regular profit any time soon. Owning shares in a football club is, therefore, more about the appreciation of its assets and brand value while holding out for that Qatari billionaire who may be willing to pay over the odds for your shares. It’s certainly not my normal investment model.
Rebuilding Manchester United
Manchester United hasn’t won the league for over a decade and has infrequently qualified for the Champions League. The team has underperformed the fanbase’s expectations, and the stadium is in dire need of an upgrade. Old Trafford Falls — the name given to the torrent of water that pours off the gap between the East Stand and the Sir Alex Ferguson Stand of the stadium — is the fourth-highest waterfall in England. Pretty much everyone blames the dire state of the club on the Glazers.
However, Ratcliffe is bringing change and investment. There has been an overhaul of the board, and the chemicals mogul is set to make a decision on building or revamping the stadium later this year. More regular on-field success and an improved stadium — one that has more corporate seating and can host finals and exhibition matches — would undoubtedly increase revenue. There’s a lot of potential to be unlocked. Moreover, there’s talk that the state may contribute to the stadium’s redevelopment.
Is Manchester United Stock a Buy, According to Analysts?
Manchester United stock has a Moderate Buy consensus rating. That’s based on one Buy and one Hold rating assigned in the last three months. The average Manchester United stock price target is $21.00, with a high forecast of $26.00 and a low forecast of $16.00. The average price target represents 24.1% upside potential.
The Bottom Line on Manchester United Stock
With Ratcliffe’s planned investments in the club, the potential for on-field improvements, and continued growth in broadcasting income, I believe the club’s revenue will move in the right direction. While footballing allegiances may stop me from investing in the club, I’m bullish on the stock. I believe Ratcliffe will take the club and the stock in the right direction.