Finding its feet

Borussia Dortmund 6 March 2018 Update
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Borussia Dortmund

Finding its feet

Half-year results

Travel & leisure

6 March 2018

Price

€5.62

Market cap

€517m

Net cash (€m) at end December 2017 including finance leases

14.2

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

(3.8)

(6.4)

6.9

Rel (local)

1.0

1.0

6.4

52-week high/low

€8.3

€5.2

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

Edison roadshows, New York

6 & 7 March 2018

Europa League round of 16 against RB Salzburg

8 &15 March 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

While arguably riding its luck of late, Borussia Dortmund (BVB) is well-placed to exploit immediate Bundesliga and Europa League opportunities. However, there is minimal room for error in terms of prized Champions League qualification, the driver of our forecast improvement in FY19 operational profit (in Bundesliga just four points separate the second place from sixth and BVB is ranked only fourth since the winter break). To its credit, BVB’s Q2 financial performance was much more assured than on the field, with steady revenue and slightly lower EBITDA without the buttress of transfers. The rise in our current-year forecast is due wholly to January transfers (notably Aubameyang), further proof of Dortmund’s ability to generate substantial hidden reserves.

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

5.6

06/17

328.4

74.1

61.1

0.56

0.06

6.6

06/18e

331.0

135.0

120.0

1.11

0.06

3.5

06/19e

375.0

85.0

71.0

0.66

0.06

5.3

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

Q2: A different kind of quarter

The three months to December saw a similar y-o-y fixture pattern but contrasting outcomes ie no Bundesliga wins until new coach Stöger joined late in the period and an equally poor Champions League (just two points against top of group table last time). This led to much lower (c 40%) broadcasting income from European competition, albeit fortuitously redeemed by the initial benefit of the new deal on domestic TV marketing. While advertising remained encouraging (up 7%), marked by new Champion Partners Opel and bwin, there was a further decline in merchandising (down 24%), which is common across the league. The shortfall in EBITDA (c €7m, relatively minor in full-year context) on flat revenue was due mainly to wage pressure, compounded by one-off severance costs related to the previous coach’s set-up.

Transfer gains fuel FY18 upgrade

Despite such quarterly volatility, we retain our operational assumptions for this year and next. The changes to our forecasts, detailed on page 2, relate predominantly to player transfers. The €37m EBITDA upgrade for the current period reflects January transfers (Aubameyang and Bartra) with no allowance for end of season dealings. We are now a little more cautious about transfers in FY19, given Aubameyang’s exit so soon after Dembélé. However, management has recently stated a need to adjust the squad, even if this would be subject to the vagaries of the new coach.

Valuation: Understandable caution

The contrast in reaction to the sale of Aubameyang with that of Dembélé (share price up c 40%) is telling, with evident concern about conflicting sporting and financial interests. This may persist in the face of unconvincing performances on the field, uncertainty about a long-term coach as well as main goal-scorer and growing financial reliance on transfer activity, however good the record.

Revenue and profit analysis

Exhibit 1: Revenue and profit analysis

Year end June (€m)

Q117

Q217

H217

FY17

Q118

Q218

H218e

FY18e

FY19e

▲▲

Home matches:

Bundesliga

3

5

12

17

3

5

9

17

17

Champions League

1

2

2

5

1

2

-

3

4

Europa League

-

-

-

-

-

-

2

2

-

DFB Cup

-

1

1

2

-

-

-

-

2

SuperCup

1

-

-

1

1

-

-

1

-

Away matches:

Champions League

1

2

2

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

8.2e

14.1e

27.0

4.8e

8.3e

13.9e

27.0

27.5

Champions League

1.9e

3.8e

3.8e

9.5

2.0e

3.9e

-

5.9

8.0

Europa League

-

-

-

-

-

-

4.0e

4.0

-

Domestic cups

1.1e

1.0e

3.2e

5.3

1.2e

0.5e

0.1e

1.8

3.5

Other

0.8e

0.8e

0.6e

2.2

2.6e

0.5e

1.2e

4.3

2.5

Total

8.5

13.8

21.6

43.9

10.6

13.2

19.2

43.0

41.5

Broadcasting:

Bundesliga

16.2

16.3

33.6

66.1

21.6

21.8

44.6

88.0

92.0

Champions League

19.6

14.0

16.5

50.1

18.9

8.5

-

27.4

68.0

Europa League

0.9

-

-

0.9

-

-

4.0

4.0

-

Domestic cups

1.6

(0.3)

7.3

8.6

1.8

1.5

0.3

3.6

4.5

Total

38.3

30.0

57.5

125.8

42.3

31.8

48.9

123.0

164.5

Advertising

17.8

22.3

47.3

87.4

21.3

23.9

50.8

96.0

99.0

Merchandising

9.2

14.0

16.3

39.5

8.7

10.7

17.6

37.0

37.0

Catering / other

7.8

7.4

16.7

31.9

5.8

7.2

19.0

32.0

33.0

Revenue before transfers

81.6

87.4

159.4

328.4

88.7

87.0

155.3

331.0

375.0

Transfers

45.2*

-

32.1

77.3

136.2**

-

73.8**

210.0**

75.0***

Total revenue

126.8

87.4

191.5

405.7

224.8

87.0

229.1

541.0

450.0

Other operating income

1.0

0.7

2.5

4.2

0.5

2.3

2.2

5.0

5.0

Labour costs

(38.4)

(43.8)

(95.7)

(177.9)

(43.9)

(50.4)

(100.7)

(195.0)

(205.0)

Share of revenue before transfers

47%

50%

60%

54%

49%

58%

65%

59%

55%

Material costs

(5.8)

(8.6)

(11.5)

(25.9)

(5.6)

(6.7)

(11.7)

(24.0)

(24.0)

Other operating costs

(43.4)

(25.9)

(62.7)

(132.0)

(94.4)

(29.8)

(67.8)

(192.0)

(141.0)

EBITDA

40.1

9.8

24.2

74.1

81.4

2.5

51.1

135.0

85.0

Source: Edison Investment Research. Note: Assuming exit in Europa League round of 16. ▲▲ Assuming Champions League round of 16 and DFB Cup semi-final. *Including disposal of Mkhitaryan. **Including disposals of Dembélé, Bender, Mor, Bartra and Aubameyang. ***Notional (assumed average of transfer revenue of three previous years excluding “exceptional” Dembélé and Aubameyang transactions).


Exhibit 2: Financial summary

€'000s

2016

2017

2018e

2019e

Year end June

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

376,300

405,700

541,000

450,000

EBITDA

 

 

86,700

74,100

135,000

85,000

Operating Profit (before amort. and except.)

75,900

62,600

123,000

73,000

Intangible Amortisation

(32,000)

(51,900)

(64,000)

(60,000)

Exceptionals

(7,500)

(100)

(1,100)

0

Other

0

0

0

0

Operating Profit

36,400

10,600

57,900

13,000

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

120,000

71,000

Profit Before Tax (FRS 3)

 

 

34,300

9,100

54,900

11,000

Tax

(4,900)

(900)

(7,000)

(1,000)

Profit After Tax (norm)

62,700

51,900

102,000

60,400

Profit After Tax (FRS 3)

29,400

8,200

47,900

10,000

Minority interests

0

0

0

0

Net income (normalised)

62,700

51,900

102,000

60,400

Profit after tax (FRS3)

29,400

8,200

47,900

10,000

Average Number of Shares Outstanding (m)

92.0

92.0

92.0

92.0

EPS - normalised (c)

 

 

68.2

56.4

110.9

65.7

EPS - (IFRS) (c)

 

 

32.0

8.9

52.1

10.9

Dividend per share (c)

6.0

6.0

6.0

6.0

EBITDA Margin (%)

23.0

18.3

25.0

18.9

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

20.2

15.4

22.7

16.2

BALANCE SHEET

Fixed Assets

 

 

302,800

354,900

364,000

348,000

Intangible Assets

65,300

141,500

147,000

140,000

Tangible Assets

188,400

184,700

182,000

180,000

Investments

49,100

28,700

35,000

28,000

Current Assets

 

 

121,800

123,700

149,000

166,000

Stocks

10,200

9,000

10,000

10,000

Debtors

51,100

48,800

50,000

50,000

Cash

51,700

49,300

59,000

76,000

Other

8,800

16,600

30,000

30,000

Current Liabilities

 

 

(78,800)

(140,900)

(140,000)

(138,000)

Creditors

(76,200)

(130,600)

(137,000)

(135,000)

Short term borrowings

0

0

0

0

Finance leases

(2,600)

(10,300)

(3,000)

(3,000)

Long Term Liabilities

 

 

(36,200)

(25,400)

(18,000)

(18,000)

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)

(10,000)

(10,000)

Net Assets

 

 

309,600

312,300

355,000

358,000

CASH FLOW

Operating Cash Flow

 

 

44,400

12,200

1,000

30,000

Net Interest

(1,400)

(2,000)

(2,800)

(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

40,000

10,000

Financing

(7,700)

0

0

0

Dividends

(4,600)

(5,500)

(5,500)

(5,500)

Net Cash Flow

500

200

17,700

17,000

Opening net debt/(cash)

 

 

(29,600)

(30,100)

(30,300)

(48,000)

Finance leases initiated

0

0

0

0

Other

0

0

0

0

Closing net debt/(cash)

 

 

(30,100)

(30,300)

(48,000)

(65,000)

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). 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 2018 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 2018. “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

295 Madison Avenue, 18th Floor

10017, 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

295 Madison Avenue, 18th Floor

10017, 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). 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 2018 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 2018. “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

295 Madison Avenue, 18th Floor

10017, 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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