Wednesday, September 21, 2011

Manchester United IPO in Singapore

Manchester United – The most popular football club, the team that has the most fans around the globe had applied for approval from the Singapore Exchange to launch an IPO. You all know what an IPO is right? If not read it here

Well, the good news is that the Singapore Exchange has approved Man U’s request to launch its IPO in the Singapore Stock Market.

Millions of loyal fans of the club would be eager to invest in its shares. But, is it a good idea to invest in the Man U IPO? Read on to find out…

Should you Invest?

As per the information that is currently available to the public, I would say Probably Not. Don’t jump into the bandwagon right away. Man U has to officially release its offer document and only then can we decide firmly. But at the outset, it doesn’t look to be a profitable investment for investors.

If you are someone that says, Man U has 350 million fans across the globe. They have star players and are one of the most famous clubs. Why wouldn’t investing in them be profitable?

Well my friend, unfortunately fame and fans isn’t enough to generate profits or revenue.

What makes a company’s stock attractive?

The two main things that make a stock attractive are: The Revenue generated by the company and the Profits generated by the company.

In case of Manchester United, the Revenue may be there, but the profits are not there.

Reasons that make Man U’s shares not so attractive:

1. Manchester United’s Debt:

Currently Manchester United’s debt stands at nearly ₤ 500 million. This is a very large number. They have annual revenue of about ₤ 300 million but as you can see the debt is nearly twice as much as their revenue.

2. Player Salary

Think of all the big names that play for Manchester United. Wayne Rooney, Rio Ferdinand, Dimitar Berbatov and the list is long. Now, think of the salary they get paid every year. This is going to eat out a very big chunk of their annual revenue. Don’t you think so?

3. Interest Payment on Debt & Debt repayment

The debt they owe is nearly ₤500 million. Even if we assume they pay a 5% interest every year they have pay nearly ₤25 million as interest. In all practical cases, the interest will be much higher and so the interest payment is going to be substantially higher. (The actual numbers from the previous year are available in the next paragraph)

Plus, they have to repay the original loan principal amount. Don’t they? So, assuming they would like to pay off atleast 10% of their debt to ensure they repay all their debt in 10 years, another ₤50 million is wiped out from the revenue.

Combine all those numbers that we saw in the previous paragraphs. You may end up with net total revenue of probably ₤50 million or lesser.

What is the actual Revenue & Payment History of Manchester United?

• In financial year 2008-2009 they reported a profit of ₤48 million (This was after they sold Christiano Ronaldo for ₤80 million). So, they were making a loss and a last minute sale ended up putting the net profit in green.
• In financial year 2009-2010 they reported a loss of nearly ₤84 million
• The amount of payments they have made in the last year were:
oThey paid nearly ₤40 million a interest payment in 2010
o Termination of Interest Rate Swaps cost another ₤40 million
o Interest payment on their ₤220 million “Payment In Kind (PIK)” loans which have since been paid off, took away another ₤30.2 million
o Forex losses amounted to ₤19 million
o Good will amortization costs was ₤35 million
o Plus – Add the salary they paid all their star players
• Eventually they declared a whopping loss of nearly ₤178 million
• The net revenue in the financial year 2010-2011 was around ₤280 million.

Now, do you think that they would have enough money out of the ₤300 million revenue to post profits and pay dividends to share holders?

What is the purpose of this public issue?

Manchester United is trying to raise US$1 billion (S$1.26 billion) which they say is around 30% of the company’s net value. Do you think they are really worth US$3.3 billion?

Trivia: Forbes magazine estimates the clubs value to be around US$1.8 billion.

Most company release IPO’s to raise fund for expansion of their business and to generate more revenue and profits. Unfortunately in case of Man U, the primary objective is to repay the debt. So, the net amount that would be used to generate profit and revenue is under serious question.

Some Last Words

All is not lost still. Manchester United will probably come up with a clear offer document that will clearly outline their revenue numbers, the purpose of the IPO and what they intend on doing with the money they raise.

So, until then, it is better to wait and watch. You can buy their tee-shirts, caps and other merchandise and cheer them rather than invest your hard earned money right now.

Disclaimer: The author does not advise for or against investment in Manchester United IPO. All numbers mentioned were picked up through internet search and investors are advised to do their own research before deciding on investing in the IPO.

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