Manchester United - A Story Of Growth

| About: Manchester United (MANU)

Summary

Manchester United is one of the most recognizable brands in the football history.

Recent management reorganization and improvement of financial metrics are signaling that despite poor performance on the field, Manchester United as a business organization has a bright future ahead.

I believe that Manchester United at its current state of affairs has all the chances to continue its growth and suggest that you consider adding this organization to your portfolio.

Manchester United (NYSE:MANU) is one of the most popular football clubs in Europe. At the same time it's only one of the few sports organizations in the region that publicly trades its stock on the market. Formed in 1878, the club quickly became one of the most recognized brands in the football history and successfully monetizes its activities to this day.

Manchester United has three major streams of revenue: Commercial revenue from advertising, sponsorships and apparel, broadcasting revenue from TV and media rights, and matchday revenue from hosting tournaments on its Old Trafford stadium:

Click to enlarge

Source: Company's Presentation

As we can see from the picture above, the organization managed to dramatically increase its revenue flow and expanded its business activities. The forecasted revenue for this year will be the biggest in the franchise's history and commercial business will earn half of the profits.

In the last couple of years, Manchester United secured a number of major sponsorship deals with the biggest companies in the world that will help the organization to expand at its current rate of growth and reward its shareholders in the long run.

In 2014, Manchester United announced sponsorship deal with Chevrolet. According to the agreement, the club will receive $600 million in the next 7 years and will represent the automotive giant on its jerseys.

Another major deal was also struck in 2014 with one of the biggest sports apparel manufacturer Adidas, for a breathtaking £750 million that will be distributed to the club in the next decade. It also became the biggest deal in football history and will give MANU shareholders great returns in the long-term:

Source: Daily Mail

As for the broadcasting business, Manchester United approved new deals with local and national TV providers and signed new international partners that will increase clubs popularity worldwide. In addition to that, the organization's own channel MUTV is now available in more than 90 countries.

At the same time, Manchester United has an average attendance rate of 99% for the last 17 years and constantly continues to improve its match day revenue.

Leadership change and financial performance

The growth of MANU's major businesses comes from the club's brand recognition. Rich history and strong performance on the field are the main reasons behind its current rate of growth. However, in the last two seasons, club's results staggered. Poor performance in the English Premiere League and constant losses in the Champion League were the main reasons why the head coach Louis Van Gaal was fired and replaced by Portuguese specialist José Mourinho two months ago.

At the same time, Glazer brothers, who own the majority of the club decided to cherish its investors and last October announced first dividend payouts in the organizations history. This move should help to restore shareholders confidence after the club's poor performance on the field. According to the decision, investors will be receiving $0.045 per share each quarter.

Also, if we look at Manchester United financials, we will see an improvement of the club's free cash flow and net income Y/Y:

Source: Company's balance sheet

Recent management reorganization and improvement of financial metrics are signaling that despite poor performance on the field, Manchester United as a business organization has a bright future ahead. The existing level of cash will probably be spend on the continuing expansion of its business activities and the dividend decision will keep most investors to stay with the club. I believe that Manchester United at its current state of affairs has all the chances to continue its growth and suggest that you consider adding this organization to your portfolio.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.