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  • Can Manchester United Score A Goal In The Market? 0 comments
    Jan 10, 2014 4:48 PM

    Investors subject themselves to the whims of fate whenever they put their cash to work in the capital markets. Buying shares in a football team (soccer to Americans) adds an extra element of unpredictability, although you can watch your investment suit up and compete on television. We look at whether England's iconic Manchester United (MANU.N) can score goals in the market as well as on the field.

    MANU has long been recognized as one of the world's leading sports franchises. Founded in 1878, it is listed by Forbes magazine as the most valuable sports franchise in the world, with a value of more than $3 billion. The club itself claims to have 659 million supporters worldwide. However, today's fans see their team sitting at eighth place in Britain's Barclays Premier League, with a new manager (coach to Americans) just getting his feet wet.

    It's been a particularly tough month for MANU, with the stock down 9.8%, compared to a 2% gain in the S&P 500. The recent dip means 12-month performance is also disappointing - the stock is up 8.9% versus 25.95% for the large cap index.

    (click to enlarge)

    Wins and losses

    Investors are wondering - to what degree will equity market returns correlate with wins on the field? MANU shareholders will hope that the markets are focused on the longer term and the immense off-field earnings potential of the franchise. If they remain focused on performance, things don't look so great - the team got off to a shaky start this year under new manager David Moyes. His predecessor, Sir Alex Ferguson, having managed the team since 1986, finally retired at the end of last year - leaving behind a legacy of consistent success that has few sporting equivalents.

    It appears the fan base extends to the sell side - five of seven analysts covering MANU currently have a buy on the stock, and the mean price target is approximately $19.20 (the figure in Eikon is £11.80), compared to a current valuation of $15.23.

    MANU is also a challenging stock to evaluate just due to the volatility in its EPS numbers. As the chart below shows, both net income and free cash flow have moved around significantly in the last five years.

    (click to enlarge)

    Not a value proposition

    Whether you want to look at EPS volatility, valuation, analyst revisions or a variety of other factors, the StarMine scores certainly aren't bullish. With a F12M P/E ratio of 37.6, the recent price decline still hasn't brought the stock back to an attractive P/E ratio - and the StarMine Val-Mo model score of 3 tells the broader story - a stock still looking expensive from a variety of valuation measures, with analyst estimates still trending down and moderately negative price momentum.

    (click to enlarge)

    Watch for analyst downgrades

    The last factor worth noting are 2015 estimates. Here the SmartEstimate remains 5.7% below the I/B/E/S consensus, as more recent estimates and more accurate analysts tend to have made more bearish calls. The negative Predicted Surprise indicates a strong likelihood of further analyst downgrades as the I/B/E/S number tends to follow the SmartEstimate.

    (click to enlarge)

    Patience may be key

    So there appear to be challenging times ahead for the company, as well as the team. However, it's worth remembering that on his departure Sir Alex asked the fan base to be patient while the new manager found his feet. Considering the team's current position on the ladder, these were wise words. If the temporary swoon in team performance becomes a habit, then investors will need patience of their own.

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