It is a period of gloom for David Moyes’ Manchester United side on the pitch; and not much better than that for the Glazer family’s MANU stock in the capital markets. Trading at a dollar over the $14 IPO price on the New York Stock Exchange, United now boast a market capitalisation of just £1.5 billion; far shy of the family’s suspected asking price, and a long way short of the value the Americans might have hoped following the August 2012 flotation.
Indeed, watching United’s stock has become almost as fascinating as the football this season – not hard given the paucity of quality displayed by Moyes’ side for much of the past seven months. While the share price gradually rose after an initial sale of around 10 per cent of the club, the months following Sir Alex Ferguson’s retirement have proven to be far rockier for the Glazer family and their banking partners.
Or in other words: the market has shown little faith that United will remain as profitable in the coming year as it has in the past. And if anything should truly concern the manager when it comes to job security, it is a negative market reaction, and not solely poor results on the pitch.
Share ownership can be a long game in addition to the short, of course, which is why so many headlines in recent weeks have erred wide of the mark. The CEO’s imperative to meet next quarter’s targets is tempered by those buy-side analyst forecasts on just how much a company, or in this case a football club, is likely to grow in the medium term. The sentiment has remained neutral to only moderately bearish over the past six months despite increasingly disastrous results for Moyes’ side.
But growth does matter. That growth in United’s case is relevant on-the-pitch and principally in the auditors’ office. United’s stock neither carries dividends, nor the prospect of any decision making power, given the Glazers’ decision to retain some 97.5 per cent of all voting rights in a controversial two-tier share issue. It leaves investors with one upside alone: capital gain based on an intangible belief in solid future financial performance. That belief, it seems, has eroded since Moyes walked into Old Trafford last summer.
What the general downward trend in United’s share price – around 20 per cent off May’s peak of $19 – says most of all is that under-performance on the pitch could have a material impact off it, even if that is likely to be in a timeframe that measures in months, if not years. Believe not the misleading headlines; at least not just yet.
But watching the stock ticker bounce down, and only occasionally up, has a draw of its own for those whose minds whir with speculation about when the American family might up sticks and sell. They always sell when it comes to leveraged purchase.
Peaks of feverish activity – possibly coinciding with share-price supporting bulk purchases by the Glazers’ underwriters – come amid a more gradual abatement in value over these past months. Indeed, United’s value has fallen not just to the £1.5 billion market cap, but the club’s £280 million net debt means that an enterprise value is barely double that for which the Glazers paid a handsome premium back in 2005.
Or to put it another way, United’s price-to-earnings ratio – the measure of the share price relative to the annual net income – is now just a touch over 12.5; down significantly from the multiple of 40 the Glazers paid during the £790 million acquisition eight years ago. Projecting forward, the P/E ratio shows current investor demand for the company; and wavering sentiment of anticipated earnings growth in the future.
Or to put this argument another way still, the family’s aggressive business model based on selling the club’s name to any company willing to pay for it, under-investing in the team, and fleecing supporters for the privilege of visiting Old Trafford, has created far less new value than the family’s spin machine might have supporters believe.
Still, United will report another record quarter when Q2 results are announced next Wednesday before the opening bell in New York. Ed Woodward is likely to face questions about how United’s anticipated failure to qualify for Europe squares with the growth story sold to investors 18 months ago. Revenue projection is broadly based on an assumption that Moyes’ team finishes no worse than third in the Premier League and reaches the Champions League quarter-finals.
The Scot’s outfit will miss at least one of those targets by some distance. Given United’s form there is no guarantee the Reds will beat Olympiakos over two legs in the coming weeks.
The financial blow of dropping out of the Champions League – estimated by analyst Andy Green to be anywhere between £30 and £45 million – may be compounded by the premium United will have to pay to attract high-quality talent next summer. After all, as has Liverpool found to its cost, Champions League football remains the barometer for all top class players, while Manchester City admitted to paying hugely inflated fees simply to qualify for the tournament in the first place.
With Rio Ferdinand, Nemanja Vidić, and Patrice Evra likely to be joined at the Old Trafford exit by Shinji Kagawa, Anderson and Nani, Moyes is going to need a substantial acquisition fund to strengthen a squad that has suffered this season. That is to say nothing of whether Wayne Rooney and Robin van Persie fancy playing in Europa League qualifying matches come late July.
Investors, whatever side of the pond, realise this is no time to erode profitability.
True, there are financial positives likely to mitigate the cost of no European football next season. Cheverlot’s new contract, a bumper television deal and a new kit deal will boost earnings, and as Ed Woodward has so proudly claimed, falling from Europe’s elite for a season or two is unlikely to harm United’s sponsor acquisition strategy.
Nor, it seems, will a hit on United’s share price drive the Glazers from Old Trafford. Not just yet at least; not until the family believes peak value for its ‘asset’ has been obtained. Given the stock price fluctuation since Sir Alex’ retirement last May, one might speculate that the time has already come and gone.