Christmas comes early

Borussia Dortmund 19 December 2017 Update
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Borussia Dortmund

Christmas comes early

Update

Travel & leisure

19 December 2017

Price

€6.26

Market cap

€575m

Net cash (€m) at September 2017 including finance leases

38.3

Shares in issue

92.0m

Free float

60.5%

Code

BVB

Primary exchange

Frankfurt

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(4.9)

(20.5)

19.7

Rel (local)

(7.1)

(25.0)

2.5

52-week high/low

€8.3

€5.1

Business description

The group operates Borussia Dortmund, a leading German football club, DFB Cup winners in 2016/17 and competing in this season’s UEFA Champions and Europa Leagues (Champions League quarter-finalists in 2016/17).

Next events

Europa League round of 32 against Atalanta

15 and 22 February 2018

Half-year results

28 February 2018

Analysts

Richard Finch

+44 (0)20 3077 5700

Paul Hickman

+44 (0)20 3681 2501

Borussia Dortmund is a client of Edison Investment Research Limited

Immediate back-to-back Bundesliga wins under new coach Peter Stöger is at least a welcome change of fortune for beleaguered Dortmund. Now the winter break allows for renewed stability and the return of key players. The team remains very much in the mix for UEFA competition next season, while a deep run in the current Europa League may significantly make up for a premature Champions League exit, as evident in our newly-introduced minor downgrades. Recent Q1 results show the success of Dortmund’s transfer policy, which is generating substantial hidden reserves in player values. Quarterly EBITDA of €81.4m, driven by the remarkable sale of Dembélé to Barcelona, provides ample scope for reinvestment and alone all but guarantees a record outturn this year.

Year end

Revenue* (€m)

EBITDA
(€m)

PBT**
(€m)

EPS**
(€)

DPS
(€)

EV/EBITDA
(x)

06/16

281.3

86.7

73.8

0.68

0.06

6.3

06/17

328.4

74.1

61.1

0.56

0.06

7.4

06/18e

335.0

98.0

83.0

0.77

0.06

5.2

06/19e

378.0

94.0

80.0

0.74

0.07

5.2

Note: *Before player transfer income. **EPS is normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Après Champions League, pas de déluge!

Despite disappointment at Dortmund’s recent dip in form, the financial implications may not be significant, assuming progress in the Europa League (we look for round of 16) and top-four qualification for next season’s Champions League (currently third in Bundesliga, albeit in a very tight race). As detailed on page 2, the reduction now in our FY18 gross EBITDA forecast is just €4m (from €102m to €98m) on €5m lower pre-transfer revenue, primarily broadcasting. The projected halving of EBITDA for the rest of this period reasonably reflects a near double-digit rise in costs on flat revenue. Risk to all this is epitomised by a new coach, whose contract is only to the season end, but so far, so good. A win against Bayern in the imminent DFB Cup tie would be an unexpected bonus to our numbers.

Reassurance from hidden reserves

Sporting Director Michael Zorc’s new admission of the challenge of squad planning in the face of shortening player retention (hitherto about five years) is also confirmation of Dortmund’s sustained ability to generate high levels of transfer income as emerging talent attracts the attention of major clubs at ever younger ages. While exceptional and at some sporting detriment, Q1’s Dembélé deal underpins current year financials with more to follow.

Valuation: Chance to regroup

On-field stabilisation may allow renewed appreciation of Dortmund’s riches (the Dembélé move alone fuelled a 40% share price rise in early season). Given the scale of the remaining surplus of market value to net player assets (c €240m per www.transfermarkt.de) and endemic lively player transfer inflation, we do not expect market speculation to abate.

Revenue and profit analysis

Exhibit 1: Revenue and profit analysis

Year end June (€m)

Q117

Q2-Q417

FY17

Q118

Q2-Q418e

FY18e

FY19e

▲▲

Home matches:

Bundesliga

3

14

17

3

14

17

17

Champions League

1

4

5

1

2

3

4

Europa League

-

-

-

-

2

2

-

DFB Cup

-

2

2

-

-

-

2

SuperCup

1

-

1

1

-

1

-

Away matches:

Champions League

1

4

5

1

2

3

4

Europa League

-

-

-

-

2

2

-

DFB Cup

1

2+final

3+final

1

2

3

3

Revenue

Match operations:

Bundesliga

4.7e

22.3e

27.0

4.8e

22.2

27.0

27.5

Champions League

1.9e

7.6e

9.5

2.0e

4.0

6.0

8.0

Europa League

-

-

-

-

4.0

4.0

-

DFB Cup/SuperCup

1.1e

4.2e

5.3

1.2e

0.3

1.5

3.5

Other

0.8e

1.4e

2.2

2.6e

1.9

4.5

2.5

Total

8.5

35.4

43.9

10.6

32.4

43.0

41.5

Broadcasting:

Bundesliga

16.2

49.9

66.1

21.6

68.4

90.0

95.0

Champions League

19.6

30.5

50.1

18.9

11.1

30.0

68.0

Europa League

0.9

-

0.9

-

4.0

4.0

-

DFB Cup/SuperCup

1.6

7.0

8.6

1.8

1.2

3.0

4.5

Total

38.3

87.5

125.8

42.3

84.7

127.0

167.5

Advertising

17.8

69.6

87.4

21.3

74.7

96.0

99.0

Merchandising

9.2

30.3

39.5

8.7

28.3

37.0

37.0

Catering / other

7.8

24.1

31.9

5.8

26.2

32.0

33.0

Revenue before transfers

81.6

246.8

328.4

88.7

246.3

335.0

378.0

Transfers

45.2*

32.1

77.3

136.1**

33.9

170.0

82.0***

Total revenue

126.8

278.9

405.7

224.8

280.2

505.0

460.0

Other operating income

1.0

3.2

4.2

0.5

2.5

3.0

4.0

Labour costs

(38.4)

(139.5)

(177.9)

(43.9)

(151.1)

(195.0)

(205.0)

Share of revenue before transfers

47%

56%

54%

49%

61%

58%

54%

Material costs

(5.8)

(20.1)

(25.9)

(5.6)

(18.4)

(24.0)

(25.0)

Other operating costs

(43.4)

(88.6)

(132.0)

(94.4)

(96.6)

(191.0)

(140.0)

EBITDA

40.1

34.0

74.1

81.4

16.6

98.0

94.0

Source: Edison Investment Research. Note: Assuming Europa League Round of 16 on transfer from Champions League and DFB Cup Round of 16. ▲▲ Assuming Champions League Round of 16 and DFB Cup semi-final. *Including disposal of Mkhitaryan. **Including disposals of Dembélé, Bender, Merino and Mor. ***Notional (assumed average of transfer revenue of three previous years excluding “exceptional” Dembélé transaction).


Exhibit 2: Financial summary

€'000s

2016

2017

2018e

2019e

June

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

376,300

405,700

505,000

460,000

EBITDA

 

 

86,700

74,100

98,000

94,000

Operating Profit (before amort. and except.)

75,900

62,600

86,000

82,000

Intangible Amortisation

(32,000)

(51,900)

(64,000)

(65,000)

Exceptionals

(7,500)

(100)

(1,100)

0

Other

0

0

0

0

Operating Profit

36,400

10,600

20,900

17,000

Net Interest

(2,100)

(1,500)

(3,000)

(2,000)

Other financial items

0

0

0

0

Profit Before Tax (norm)

 

 

73,800

61,100

83,000

80,000

Profit Before Tax (FRS 3)

 

 

34,300

9,100

17,900

15,000

Tax

(4,900)

(900)

(3,500)

(2,500)

Profit After Tax (norm)

62,700

51,900

70,500

68,000

Profit After Tax (FRS 3)

29,400

8,200

14,400

12,500

Minority interests

0

0

0

0

Net income (normalised)

62,700

51,900

70,500

68,000

Profit after tax (FRS3)

29,400

8,200

14,400

12,500

Average Number of Shares Outstanding (m)

92.0

92.0

92.0

92.0

EPS - normalised (c)

 

 

68.2

56.4

76.6

73.9

EPS - (IFRS) (c)

 

 

32.0

8.9

15.7

13.6

Dividend per share (c)

6.0

6.0

6.0

7.0

EBITDA Margin (%)

23.0

18.3

19.4

20.4

Operating Margin (before GW and except.) (%)

20.2

15.4

17.0

17.8

BALANCE SHEET

Fixed Assets

 

 

302,800

354,900

330,000

308,000

Intangible Assets

65,300

141,500

120,000

100,000

Tangible Assets

188,400

184,700

182,000

180,000

Investments

49,100

28,700

28,000

28,000

Current Assets

 

 

121,800

123,700

145,000

169,000

Stocks

10,200

9,000

10,000

10,000

Debtors

51,100

48,800

50,000

50,000

Cash

51,700

49,300

81,000

102,000

Other

8,800

16,600

4,000

7,000

Current Liabilities

 

 

(78,800)

(140,900)

(127,000)

(125,000)

Creditors

(76,200)

(130,600)

(117,000)

(115,000)

Short term borrowings

0

0

0

0

Finance leases

(2,600)

(10,300)

(10,000)

(10,000)

Long Term Liabilities

 

 

(36,200)

(25,400)

(27,000)

(25,000)

Long term borrowings

0

0

0

0

Finance leases

(19,000)

(8,700)

(8,000)

(8,000)

Other long term liabilities

(17,200)

(16,700)

(19,000)

(17,000)

Net Assets

 

 

309,600

312,300

321,000

327,000

CASH FLOW

Operating Cash Flow

 

 

44,400

12,200

5,200

31,000

Net Interest

(1,400)

(2,000)

(2,000)

(2,200)

Tax

(300)

(5,500)

(6,000)

(6,000)

Capex

(9,400)

(8,100)

(9,000)

(9,300)

Acquisitions/disposals

(20,500)

9,100

50,000

13,000

Financing

(7,700)

0

0

0

Dividends

(4,600)

(5,500)

(5,500)

(5,500)

Net Cash Flow

500

200

32,700

21,000

Opening net debt/(cash)

 

 

(29,600)

(30,100)

(30,300)

(63,000)

Finance leases initiated

0

0

0

0

Other

0

0

0

0

Closing net debt/(cash)

 

 

(30,100)

(30,300)

(63,000)

(84,000)

Source: Source: Borussia Dortmund accounts, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Borussia Dortmund and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

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Germany

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London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Borussia Dortmund and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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