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Manchester United plc
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== Valuation == === What's the Current Value of Manchester United === As at 30th June 2023, the stock (NYSE: MANU) closed at $24.38 per share. Given the current takeover negotiations with external bidders, we have seen increased price movement (mostly positive) as investors are excited by the potential sale to either the Qatari family of Jim Ratcliffe. As as the time of writing this report, no clear winner has emerged. That said, a plain vanilla valuation approach of the total market capitalization plus the net debt is shown in the table below to get what we understand as the current Enterprise Value. {| class="wikitable" |+ ! colspan="4" |MANU Current Valuation - June 2023 |- |Share Price (@30/06) |[$] | |24.4 |- |Shares Outstanding |[#M] | |163 |- |Equity Value |[$M] | |3,974 |- |Add: Net Debt at June 2022 |[$M] | |631 |- |'''Enterprise Value''' |[$M] | | '''4,605''' |} Ideally, multiple valuation methods such as the Discounted Cashflow, trading comps, Dividend Discount Model, Residual Income, etc. are employed to arrive at an acceptable valuation range for a firm. However, given the peculiarities of the Sports and Entertainment Industry which Manchester United operates in, we cannot accurately apply the aforementioned valuation techniques for the following reasons: # '''Discounted Cashflow''': Relies on a company generating positive cashflows, and in this case, Manchester United hasn't consistently generated positive cashflows in the last five years. # '''Trading Comps''': There aren't many direct public comparables to Manchester United. However, we managed to apply the multiples from the closest comps that we could find and got a decent result. Results from the trading comps estimated the Enterprise value at $3.5B. # '''Dividend Discount Model''': While MANU has managed to pay dividends consistently between 2017 and 2021, dividends are flat at $0.09/share, hence, it can not be used to arrive at a near accurate valuation for the stock. In addition, dividends have not been consistent in 2022 which makes it even harder to estimate the stock value using the DDM. For the reasons mentioned above, we have identified quantitative factors to be considered in the valuation of Manchester United. We find the following factors to be crucial in the valuation of Manchester United and other related companies: # '''Brand Value''' - According to Brand Finance 2023<ref>https://brandirectory.com/rankings/football/</ref>, Manchester United is now the fourth most valuable football brand in the world behind only Manchester City, Real Madrid, and FC Barcelona. The brand is valued at β¬1.4 billion, with a Brand Strength Index (BSI) of 92.5/100 and an AAA+ rating. For context, the brand is defined as the trademark and associated intellectual property<ref>https://www.statista.com/statistics/234493/football-clubs-in-europe-by-brand-value/</ref>. # '''Size of Fanbase''' - According to Footgoal<ref>https://footgoal.pro/top-10-football-clubs-with-most-fans-in-the-world-in-2021/</ref> and as at June 2023, Manchester United has the third largest social media following in the world clocking at around 209.4M across all platforms. This is behind only the Spanish giants; Real Madrid and FC Barcelona in first and second place consecutively. # '''Performance on the pitch''' - While this is factored into the brand value and net income calculations, the significance of on-pitch performance of football clubs can not be overstated. In the last season (22/23), we saw Manchester City complete the treble and that had a massive effect on the brand value propelling them into the most valuable football brand in the world. From an acquisition point of view, if the acquirer thinks he can build a team to achieve similar on-pitch performances, then a higher premium would be attached to the Enterprise value. While the factors mentioned above are hard to quantify, we clearly see why different investors with varying rationales might be willing to pay a hefty premium to own a MANU stock. It's a prestigious asset to own. === What's the expected return of an Investment in the Company? === Based on historic returns, the Stockhub users estimate that the expected capital appreciation of an investment in the company over the next five years is β20%. In other words, a Β£1,000 investment in the company is expected to return Β£1,200 in five years. The capital appreciation includes the share price appreciation (β17%) and an estimated dividend payout (β3%). Between 2018 and 2021, dividends were paid biannually at $0.09 per share. However, the last dividends was declared in H1 2022, and no dividends have been paid since then. For simplicity, we have assumed that dividends paid were not reinvested. [[File:Price Chart.jpg|MANU Stock Price Chart. CAGR 3% ]] <ref>https://uk.finance.yahoo.com/quote/MANU/history?period1=1530316800&period2=1690675200&interval=capitalGain%7Cdiv%7Csplit&filter=div&frequency=1mo&includeAdjustedClose=true</ref> Given the risk profile of the firm, the Stockhub users estimate that a suitable rate of return on an investment in MANU is 10% per annum. Should Manchester United continue with it's historic returns of only β20% over five years, then an investment in the company is considered to be 'unsuitable'. === What are the assumptions used to estimate the return? === The weighted Average Cost of Capital (WACC) was used to calculate the minimum return expected by an investor in MANU, given it's risk profile. {| class="wikitable" |+Key inputs !Description !Value !Commentary |- |Cost of Equity (%) |11% |Given the risk profile and capital structure of MANU, the CoE represents how much return an equity holder would expect. The Capital Asset Pricing Model was used to estimate this. |- |Cost of Debt (%) |4% |As with the cost of equity, the capital structure and interest expenses paid on total debts was used to estimate the Cost of Debt. |- |Corporate Tax Rate (%) |25% |According to the Financials, the UK Corporate tax rate of 25% was applied. The UK Corporate tax rate was increased from 19% to 25% effective April 2023. |}
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