Business analysis and valuation of Manchester United

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.