ChrisHepburn
ChrisHepburn
Manchester United (NYSE:MANU) has problems on and off the pitch. The team currently sits in sixth place in the Premier League with 44 points. Furthermore, its share price has plummeted over 30% since the 14th February which was the last day for investors to buy the tender offer from Sir Jim Ratcliffe.
The MANU sharp price is currently $14.37 and seems headed back to the ~$13 level, which was the price at the close of 21st November 2022, the day before the Glazer announcement sent prices soaring. I think MANU is in a much better position than it was the last time it traded near $13 and this could be a fantastic entry point.
MANU has dropped nearly 50% in the last year, but this is not because of rapidly deteriorating financials. The main source of revenues are steady and reliable. Here's a look at the last quarterly report from January 17th which "Achieved record total first quarter revenue driven by record Matchday and Commercial revenue."
Q1 Report (MANU Site)
Guidance for fiscal 2024 was reduced, which explains the drop on the day of the release, but this is not a club or company in dire financial trouble.
For fiscal 2024, the Company is forecasting revenue guidance to be within a range of £635 million to £665 million from prior guidance of £650 million to £680 million and adjusted EBITDA guidance to be within a range of £125 million to £150 million from prior guidance of £140 million to £165 million, owing to the early Champions League exit and related reduction in Broadcasting revenues.
Failing to finish in the top four this season would mean another year without Champions League football and hurt the top line. However, unless the team is relegated (impossible this season), Manchester United are almost guaranteed regular matchday, broadcasting and commercial revenues.
Much of the recent drop has simply been a function of the huge preceding rally and overvaluation sparked back in on Nov 22, 2022 by the following statement from the Glazers.
Manchester United plc, one of the most successful and historic sports clubs in the world, announces today that the Company’s Board of Directors is commencing a process to explore strategic alternatives for the club.
As part of this process, the Board will consider all strategic alternatives, including new investment into the club, a sale, or other transactions involving the Company.
This led to huge excitement and speculation. The Glazers tenure at the club has been accompanied by a dip in performance from the team and a lack of silver-wear. Many fans blame the Glazers and there have been protests and boycotts on the running of the club, especially the accumulation of debt.
The prospect of new ownership brought new hope and many hoped for a buyout from a cash-rich investor similar to Sheikh Mansour, who took majority ownership of United's neighbours Manchester City in 2008. The Abu Dhabi royal made huge investments in all aspects of the team and the infrastructure around them and they are now a dominant force in world football.
In early 2023, news of a potential takeover from Qatar's Sheikh Jassim sent MANU's share price surging to a peak of $27.34. The deal for 100% of the Glazer's shares was gradually upped from $5bn to an alleged $6.3bn over the course of the year. However, the Glazer's still wanted more, and reportedly were unhappy about selling out completely. Sheikh Jassim then withdrew his offer in October 2023 and the Ratcliffe deal went ahead.
As the Jassim deal fell apart, so did any chance of a valuation near $6bn. The market cap has fallen to where it was before all the speculation started.
The Ratcliffe deal was a let-down as not only did shareholders not cash out in the $28-30 per share area, it left the Glazers in control of the club,
However, I think MANU is in much better shape than when this whole debacle started in 2022. Ratcliffe is extremely rich with a personal fortune estimated at $17B. His purchase of 25% of the club valued the franchise at $5.4 billion, or $33 per share. He also committed to spending $300M more to take his stake to 27.7%. These are newly issued shares so this is available to spend.
Following the closing of the Offer and the acquisition of the Class B shares, Sir Jim has invested $200 million into the club for additional Class A and Class B shares via a primary issuance, resulting in ownership of approximately 27.7% of the club’s Class A shares and 27.7% of the club’s Class B shares, with a further $100 million to be invested by 31 December 2024. These funds are intended to enable future investment in infrastructure at Old Trafford.
Ratcliffe is a life-long Manchester United fan and "local lad." He has already shaken up the boardroom and will bring much-needed change. I think the future is a lot brighter with Ratcliffe on board and the $300M investment in infrastructure should help spur long-term growth.
Manchester United's share price has, for the most part, oscillated around the $17 level, as illustrated by a weekly chart with a 200-week moving average.
MANU Weekly Chart (TradingView)
Buying below $17 should be a good entry over the long-term.
The daily chart shows how price has accelerated lower since the $17 support was broken. This is partly due to the speed of the move higher in 2022 which left which left a 'thin' area with little trading and no support levels. Price is nearing the $13 level from the 21st November before all the volatility started. The IPO was at $14 so this is also a relevant level and I expect $13-14 to hold.
MANU Daily Chart (TradingView)
An initial bounce should target $17-18 again, which is a potential 25% gain. Long-term, it is unlikely to get back near the $27 high but there is potential for a steady recovery should sentiment improve due to Ratcliffe's involvement.
While the share price has been volatile since the Glazer's announcement in 2022, revenues have been steady and should remain so. The Ratcliffe deal may have been a let-down, but it has put MANU in a much better position than it was in 2022 and we can still buy at 2022 prices. And not to mention it's nearly a 60% discount to what Ratcliffe paid.