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Business analysis and valuation of Manchester United

Rætta, Kim
Master thesis
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URI
https://hdl.handle.net/11250/2678623
Date
2020
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  • Master Thesis [3384]
Abstract
The purpose of this thesis is to estimate the equity value, thereby estimating value per share of

Manchester United Plc, henceforth referred to as Manchester United or United. Valuation date

is June 30th, 2019, and by comparing with market share price the same day, an investment

recommendation is issued.

The framework for this thesis is based on Palepu, Healy and Peek’s textbook Business

analysis and valuation. A presentation of Manchester United and the football industry is

followed by a strategic and financial statement analysis, serving as basis for a prospective

analysis including forecast and valuation.

A look into Manchester United and the football industry uncovers a growing multi-billion

industry driven by increasing broadcasting revenues. The strategic analysis reveals industry

profitability faces threats from increasing player wages and illegal streaming. With brand

awareness and organizational structuring, United maintain a competitive advantage through

capitalizing on a strong brand. Investment in scouting network and homegrown players, is

expected to positively affect future earnings and cashflows. Homegrown players,

controversially carry book value of zero, reducing amortization and employee benefits

compared to buying established star players.

The financial statement analysis discloses Manchester United as a well driven business

compared to their peers. In spite of mediocre sporting results, the club has maintained a

profitable level. Forecasted financial statements are influenced by diminishing broadcasting

revenue growth and an increasing NOPAT margin due to reduction of amortizations and

player wages.

In direct valuation methods based on the dividend discount model, expected future earnings

and cashflows are discounted at estimated cost of equity. Equity value is calculated at 2221

million GBP, translated into an estimated value per share of 17.19 USD. Comparing with

market share value of 18.25 USD concludes Manchester United’s equity is fairly priced,

hence a “hold” recommendation is issued.

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