It’s not over till it's over!

Borussia Dortmund 17 June 2019 Outlook
Download PDF

Borussia Dortmund

It’s not over till it's over!

Reappraisal

Travel & leisure

17 June 2019

Price

€8.42

Market cap

€775m

Net cash (€m) at 31 March 2019 including finance leases

12.7

Shares in issue

92.0m

Free float

60.1%

Code

BVB

Primary exchange

FRA

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(4.9)

7.7

39.7

Rel (local)

(5.7)

3.2

51.4

52-week high/low

€10.09

€5.40

Business description

The group operates Borussia Dortmund, a leading German football club, Bundesliga runners-up in 2018/19, DFB Cup winners in 2016/17 and competing in next season’s UEFA Champions League (round of 16 participants in 2018/19).

Next events

Edison roadshow, London

18 June 2019

DFL-Supercup vs Bayern Munich

3 August 2019

Preliminary results

Late August 2019

Analysts

Richard Finch

+44 (0)20 3077 5700

Neil Shah

+44 (0)20 3077 5715

Borussia Dortmund is a client of Edison Investment Research Limited

Pushing champions Bayern Munich to the wire can only have enhanced Borussia Dortmund’s (BVB) fabled ‘Echte Liebe’ brand. Three prominent player signings immediately post-season mark its resolve to improve even on a campaign that clearly exceeded expectations with a new head coach and a developing squad. That player spend (estimated at c €75m) is almost covered by the proceeds from January's bumper transfer of Pulisic, while a new independent squad valuation, highlighting Jadon Sancho (19) as the most valuable Bundesliga player (€100m), confirms BVB's substantial hidden reserves (broadly, c €300m, according to www.transfermarkt.de). We are broadly maintaining forecasts for this year and next with renewed confidence.

Year end

Revenue* (€m)

EBITDA
(€m)

PBT**
(€m)

EPS**
(€)

DPS
(€)

EV/EBITDA
(x)

06/17

328.4

74.1

61.1

0.56

0.06

10.1

06/18

313.3

126.6

111.2

1.03

0.06

5.7

06/19e

370.0

105.0

93.0

0.86

0.06

7.1

06/20e

383.0

110.0

98.0

0.91

0.06

6.9

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

What a difference a year makes

Last-day competition for the Bundesliga title rather than Champions League qualification, Dortmund’s minimum target, exemplifies the club’s performance gain in 2018/19. This is all the more creditable after prior season upheavals, notably three changes of head coach in quick order and the loss of exceptional talent such as Aubameyang and Dembélé. Sporting expectations are now inevitably higher, so we welcome significant investment in established, if still developing players (current internationals Brandt, Hazard and Schulz) rather than youth, in line with planned squad optimisation during coach Favre’s second summer transfer window.

Forecasts maintained on increasing resilience

While two bumper transfers make FY18 a hard act to follow, we look for a clear rise this year in operational profit thanks to c 20% higher pre-transfer revenue, driven by broadcasting income from the Champions League. This period’s own bumper deal (Pulisic to Chelsea for €64m) should further secure our maintained EBITDA forecast for the full year as we expect only break-even in Q4 (negative €1.9m in Q418). For FY20, the absence of changes in media contracts and competitions suggests profit consolidation, assuming Champions League qualification. Transfer dealings are the joker in the pack; it is invidious to single out Sancho, but disposal at current valuation might alone yield the bulk of our EBITDA forecast.

Valuation: Long-term play

www.transfermarkt.de’s new Bundesliga player valuation (c €480m, adjusted for loans/disposal) provides a respected pointer to BVB’s hidden reserves (c €300m surplus of market value to net player assets). While notional and at sporting cost, this underpins our forecasts in view of increased reliance on transfers. The share price is at a c 20% discount to a simple sum-of-the-parts valuation of €10.75.

Investment summary

Company description: A leading German football club

Borussia Dortmund has been a major force in German football for decades. Second only to Bayern Munich in terms of Bundesliga titles over the last 25 years, it was the first German club to win a European competition (the European Cup Winners’ Cup in 1966) and the Champions League in 1997. Last season was typically successful: narrow runners-up in the Bundesliga and group stage winners in the Champions League. The club’s fabled stadium (the Westfalenstadion, now formally Signal Iduna Park) has long enjoyed the highest average football attendance (over 80,000) in the world. Borussia Dortmund was formed as Ballspielverein Borussia 09 e.V. Dortmund in 1909 (hence the BVB 09 logo) and was listed on the Frankfurt Stock Exchange in 2000.

Valuation: Long-term play

Borussia Dortmund has the lowest rating among listed peers, based on prospective EV/EBITDA and EV/Pre-transfer revenue. An EV/EBITDA rating of 7x FY19e does not, in our view, reflect the long-term potential of powerful brand development, valuable media rights and sustainable positive cash flow, backed by freehold property, substantial subscription revenue, and hidden reserves from player investment. EV as a share of resilient and growing revenue is barely 2x prospective. The company’s transfer policy continues to generate significant hidden reserves in player values. Despite a positive balance of transfers since 2013/14, the surplus of market value, estimated by www.transfermarkt.de, to net player assets is c €300m.

Sensitivities

Reliance on sporting fortunes, especially on participation in lucrative UEFA competitions.

Serious player injuries cannot be foreseen, but are mitigated by a strong squad.

Competes for a share of disposable consumer income but home attendance resilient and substantially pre-sold.

Dependence on brand perception tempered by long-term contracts with major sponsors.

Subject to external governing bodies, which may change the structure of German and European football.

Negotiation of key media contracts is outside the company’s control. Obliged to pay players and coaching staff in line with competitors.

Potential conflict between sporting and financial aims.

Financials

Borussia Dortmund’s turnaround has been remarkable. The company was at risk of bankruptcy in 2005, broadly attributed to extravagance, notably on foreign players, after Bundesliga success. New management (the current CEO and CFO) implemented a reorganisation programme, which included the restructuring of liabilities through a long-term, fixed-interest loan from Morgan Stanley, cost-cutting, and a strategy of revenue development and sustainable investment in players. Key initiatives included the repurchase of the stadium, eliminating high rental costs, and early repayment of the loan via a long-term agreement with marketing partner Sportfive, while early extension of flagship contracts endorsed the advertising strategy. Jürgen Klopp’s appointment as coach was in tune with management’s approach to player investment. A c €140m fund-raising in 2014, backed by key sponsors and new partnerships, was a strong endorsement of strategy.


Company description: A leading German football club

Rich pedigree: Since its formation in 1909, Borussia Dortmund has become one of Germany’s most successful football clubs, having won eight national championships, four DFB Cups and six DFL-Supercups, as well as the Champions League in 1997 and the European Cup Winners’ Cup in 1966.

Exhibit 1: Club honours

German championship*

1956, 1957, 1963, 1995, 1996, 2002, 2011 and 2012

DFB Cup

1965, 1989, 2012 and 2017

DFL-Supercup

1989, 1995, 1996, 2008,** 2013 and 2014

UEFA Champions League

1997 (defeated Juventus 3-1 in final)

European Cup Winners’ Cup

1966 (defeated Liverpool 2-1 in final)

Intercontinental Cup

1997 (defeated Cruzeiro 2-0 in final)

Source: Bundesliga. Note: *Bundesliga from 1964. **Unofficial.

During the 56 seasons of the Bundesliga, the club has achieved top six status (the benchmark for UEFA competition qualification) on 25 occasions (including the recent season when it was second) in addition to its five titles. Indeed, as shown in Exhibit 2, Dortmund’s performance in the Bundesliga has been second just to dominant Bayern Munich as the only other club to have won multiple titles in the last 20 years or so. The prolonged decline between 2003 and 2008 reflects financial troubles under previous management, while the 2015 dip proved short-lived (change of coach) and still allowed successful international participation as Europa League quarter-finalists.

Exhibit 2: Bundesliga performance since 2001

Source: Bundesliga

Head coach: Lucien Favre joined Dortmund in May 2018 after two years as head coach at Nice. He took Nice to their highest league position for 40 years (third, with Champions League qualification) in his first season with the club but European competition was narrowly missed in the following season (8th in Ligue 1). Over the previous decade he gained valuable Bundesliga experience as coach both at Hertha Berlin (fourth in 2008/09) and then at Borussia Mönchengladbach (third in 2014/15). This followed a long and successful association with Swiss football, both as a player (regular international with 24 caps and a Swiss league title with Servette) and as a manager (two league titles with FC Zürich). He is 61 and his contract at Dortmund runs until June 2020.

Sporting director: Michael Zorc has spent his whole career at Dortmund, first as player for 17 years (Bundesliga appearance record), culminating in the Bundesliga and Champions League success of the mid-1990s and then as sports director since 1998. Aged 56, he is under contract until 2021.

Participation in the recent season by matches started is shown in Exhibit 3, which also highlights key changes for 2018/19 (acquisitions shown in bold).

Exhibit 3: BVB squad participation in 2018/19 season

(45 matches: 34 Bundesliga + eight Champions League + three DFB Cup)

Nationality

Age**

At BVB since

From

Contract expiry

Matches started

Goals§

Goalkeeper***

Roman Bürki

Sui*

27

2015

Freiburg

2021

40

-

Defenders

Abdou Diallo

Fr

22

2018

Mainz

2023

37

1

Manuel Akanji

Sw*

23

2018

Basel

2022

31

1

Lukasz Piszczek

Pol*

33

2010

Hertha Berlin

2020

26

1

Achraf Hakimi

Mor*

19

2018

Real Madrid (on loan)

2020

25

3

Raphaël Guerreiro

Por*

23

2016

Lorient

2020

21

6

Dan-Axel Zagadou

Fr

19

2017

PSG B

2022

20

2

Marcel Schmelzer

Ger*

30

2005

BVB II

2021

9

-

Ömer Toprak

Tur*

29

2017

Bayer Leverkusen

2021

6

-

Midfield

Axel Witsel

Bel*

29

2018

T J Quanjian

2022

40

6

Thomas Delaney

Den*

26

2018

Werder Bremen

2022

33

3

Jadon Sancho

Eng

18

2017

Manchester City U18

2022

31

13

Mario Götze

er*

26

2016

Bayern Munich

2020

26

7

Julian Weigl

Ger*

22

2015

1860 München

2021

21

1

Christian Pulisic

US*

19

2014

Chelsea (on loan)

2019****

17

7

Mahmoud Dahoud

Ger

22

2017

Borussia M’gladbach

2022

12

1

Forwards

Marco Reus

Ger*

29

2012

Borussia M’gladbach

2023

35

21

Jacob Bruun Larsen

Den

19

2017

BVB U19

2021

17

3

Paco Alcácer

Sp*

24

2018

Barcelona

2023

15

19

Marius Wolf

Ger

23

2018

Eintracht Frankfurt

2023

15

1

Maximilian Philipp

Ger

24

2017

Freiburg

2022

11

2

Source: Bundesliga, BVB. Note: *Full international. **Age at start of season. ***Also four starts by Hitz and one start by Oelschlägel. ****Sold to Chelsea 1.19. §Excludes goals in DFB Cup penalty shootout and one own goal. Bold = acquisitions this season.

In terms of attack, the loss of exceptional goal scorer Aubameyang to Arsenal in January 2018 (21 goals in all competitions in the first half of 2017/18) was mitigated by remarkably effective finishing by Barcelona signing Alcácer. His Bundesliga goal tally (18) was second only to that of Bayern’s Lewandowski and achieved mainly as a substitute (his record goals-per-minute ratio was, for example, double that of 2018/19 Premier League’s three joint top scorers). This was complemented by a resurgent Reus, whose most prolific Bundesliga season for five years (17 goals) reflected renewed fitness (27 starts against only 11 in 2017/18). Sancho came of age with a dozen goals (the youngest Dortmund player to reach double figures in a season) and the second-highest number of assists in Europe’s five major leagues. Impressively, he started all but two of Dortmund’s last 28 games. There was also a significant contribution from Götze, especially in the second half of the season; his seven goals marked his most successful campaign since returning to the club in 2016.

As for midfield, summer arrivals, Witsel and Delaney, proved immediately a robust, creative and stable partnership, with a pass completion rate of over 90% and seven goals. In particular, Witsel started all but five of BVB’s 45 competitive matches. In defence, the absence of veterans Sokratis (now at Arsenal), and Schmelzer and Toprak (largely through injury) was made good by the rapid integration of Diallo and Hakimi (on loan from Real Madrid) alongside Akanji.

At the start of the season, the 2018/19 squad of 25 had an average age of 24, compared with 26 for Bayern and 23 for Leipzig and 25 for Leverkusen, its closest Bundesliga rivals. Key contributors such as Sancho, Hakimi, Diallo and Akanji were well below this average, while seasoned Götze and Reus were only 26 and 29 respectively.

The race for the 2018/19 Bundesliga title

Exhibit 4: Bundesliga 2018/19

Source: Bundesliga

In what was expected to be a transitional season with a target simply of a top-four finish, Dortmund markedly outperformed. After a troubled 2017/18 (29 points behind champions Bayern and Champions League qualification only on goal difference), taking the title race to the very last day with the club’s third-highest points total (up 21 y-o-y and 10 ahead of third-placed Leipzig) was no mean feat. Indeed, for five months and 18 games (more than half the season) BVB topped the table, at one point (Matchday 15) by a striking nine points. There was then a sudden dip in form in February (see Exhibit 4) as successive draws, including the late concession of a three-goal lead vs Hoffenheim, and only the second defeat of the season, coincided with exits from the Champions League and DFB Cup. This allowed Bayern to close the gap by Matchday 25, but to Dortmund’s credit for the rest of the season a clear pick-up (average of 2.1 points per game) saw the champions being all but matched and Champions League qualification achieved as early as Matchday 30.

Results in European competition were also positive, if ultimately disappointing. A Champions League group win with 13 points was in stark contrast to just two points in 2017/18. The highlight was an impressive 4-0 win over Atlético Madrid, the heaviest defeat in seven years under coach Simeone. By mid-February, Dortmund’s form had dipped (see above), reflected in disappointing losses (0-4 on aggregate) to Tottenham in the round of 16.

Well-defined strategy

After its financial troubles (see page 2) Dortmund has successfully concentrated on developing core revenue sources such as broadcasting, advertising, match operations and merchandising. Management is similarly intent on maximising success on the field without taking on new debt, while achieving a balance between financial and sporting interests.

Squad development: Exhibit 5 shows that BVB continues to adhere to its aim of putting together a competitive team with a focus on promising young players and on a tight budget. Identification of up-and-coming players at minimal cost (even free) and their development at the ‘BVB Academy’ are to the fore, underpinning a healthy potential surplus to book value, as estimated by www.transfermarkt.de. Given an enviable recent development record with Dembélé, Aubameyang and Pulisic, excitement centres on Sancho (highlighted), whose market value was newly upgraded by €20m to €100m by www.transfermarkt.de. However, Exhibit 5 confirms an array of hidden reserves in the form of first-team regulars, prominent new signings or teenage newcomers such as Balerdi and Gómez (Sancho valued at €5m only a year ago). 2018/19 saw BVB win the German U19 championship for the eighth time. On disposals, management has achieved a balance with considered sales, be it ‘too good an offer to refuse’ (Dembélé) or ‘an extremely lucrative bid, given the low contract maturity’ (Pulisic).

Exhibit 5: Significant player transactions

Disposals since 2016 (€25m+)

Date

Age at disposal

Cost (€m)

Transfer fee (€m)

Buyer

Henrikh Mkhitaryan

2016

27

27

42

Manchester United

Mats Hummels

2016

27

4

35

Bayern Munich

Ilkay Gündogan

2016

25

5

27

Manchester City

Ousmane Dembélé

2017

20

15

105

Barcelona

Pierre-Emerick Aubameyang

2018

28

13

64

Arsenal

Christian Pulisic

2019

20

Free

64

Chelsea

Current squad development (players with estimated market value of €25m+)

Date

Age at signing

Cost (€m)

Current value (est) (€m)

Contract expiry

Jadon Sancho

2017

17

9

100

2022

Marco Reus

2012

23

17

50

2023

Manuel Akanji

2018

22

21

40

2022

Abdou Diallo

2018

22

28

35

2023

Axel Witsel

2018

29

20

32

2022

Dan-Axel Zagadou

2017

18

Free

28

2022

Thomas Delaney

2018

26

20

27

2022

Julian Weigl

2015

19

3

25

2021

Raphaël Guerreiro

2016

22

12

25

2020

Mario Götze

2016

24

22

25

2020

New signings (from 7.19)

Julian Brandt

2019

23

25

50

2024

Thorgan Hazard

2019

26

26

38

2024

Paco Alcácer

2019*

25

21

37

2023

Nico Schulz

2019

26

26

25

2024

Youth development:

Leonardo Balerdi

2019

19

15

14

2024

Sergio Gómez

2018

17

3

3

2021

Source: www.transfermarkt.de. Note: *On loan from Barcelona for 2018/19 season.

Dortmund’s positive reconciliation of conflicting interests is further highlighted by the disparity in its net transfer balance (amount received less paid) with those of certain fellow Champions League regulars. Exhibit 6 shows last five seasons. The comparison with Bayern is telling as Bundesliga performance is also noted. While Dortmund has ensured European football with a net positive balance and easily outpaced other domestic rivals (over the last five years 16% more Bundesliga points than the nearest, Bayer Leverkusen), there is a glaring 22% points inferiority to Bayern.

Exhibit 6: Net transfer balances since 2014/15 of selected Champions League regulars

Cumulative since 2014/15

€m

2014/15

2015/16

2016/17

2017/18

2018/19

Net balance

Bundesliga rank (points)

Borussia Dortmund

-60 (7)

+23 (2)

-10 (3)

+146 (3)

+23 (2)

+122

2 (319)

Bayern Munich

-5 (1)

-56 (1)

-18 (1)

-84 (1)

+74 (1)

-88

1 (411)

Manchester City

-58

-141

-178

-226

-23

-626

Manchester United

-146

-54

-138

-153

-47

-538

PSG

-47

-93

-75

-140

-105

-459

Barcelona

-85

-13

-91

-127

+5

-310

-

Juventus

-26

-71

-21

-15

-152

-285

Chelsea

+7

-3

-24

-60

-155

-236

Liverpool

-52

-35

+5

+16

-144

-209

Inter Milan

+7

+13

-139

-61

+1

-180

Atlético Madrid

-30

+18

-37

-19

-61

-128

Real Madrid

-21

-69

+8

+88

-45

-40

-

Tottenham

-4

+17

-31

-18

+5

-31

Source: www.transfermarkt.de. Note: Bundesliga rank in brackets.

Brand development: The ‘Borussia Dortmund’ brand is one of the company’s prime assets. It has been newly rated by Brand Finance as the 12th most valuable football brand, as in 2018. Apart from a global fan base (see below), average Bundesliga home match attendance of over 80,000 is consistently the highest in the world, followed by Barcelona, Manchester United and Bayern Munich at c 75,000, according to www.transfermarkt.de. Reflecting the longstanding devotion of the club’s Westphalia heartland and epitomised by the fervent atmosphere of the ‘Gelbe Wand’ (Yellow Wall) at the ‘Südtribüne’, the largest stadium standing area in the world, BVB’s brand image is one of intensity and loyalty (over 55,000 season tickets), which is a powerful platform for advertising.

Management aims to monetise this, as follows:

Advertising (26% of FY19e non-transfer revenue and +8% in FY18): Typically long-term contracts with leading regional and international companies with a proven ability to renew at higher prices or market new opportunities. Principal sponsors are Evonik (shirt, until 2025), Signal Iduna (stadium, until 2021) and Puma (kit, until 2020). There are now 10 ‘BVB Champion Partners’ and about 50 lower-tier sponsors. This activity is outsourced to Lagardère, which receives commission on revenue generated. BVB is pioneering virtual advertising to international audiences at Bundesliga home games.

Merchandising (8% of FY19e pre-transfer revenue and -25% in FY18): The award of licences and revenue from the sale of team merchandise. In addition to partners’ wholesale distribution channels, sales are made via a major FanWelt centre near the stadium, branded stores (FanShops) in Dortmund, sales kiosks at the stadium and e-commerce, www.bvbonlineshop.com.

New media: In promoting brand awareness, BVB continues to be active on social media, attracting 36m users on Instagram, Facebook, Twitter, YouTube and Sina Weibo at end 2018. While Facebook remains the mainstay (now 15m ‘likes’), the strongest growth has been on Instagram (since June 2018 followers up 30% at 7.5m). However, both are small compared with Chelsea and Arsenal which have respectively 48m and 38m Facebook ‘likes’ and 17m and 14m Instagram followers. New channels include short video platform TikTok and English-language Twitter. Asia is proving receptive, with the company’s Sina Weibo account among the fastest-growing profiles of European clubs in China. BVB’s own app still enjoys strong demand (1.3m users in 2017/18), as does its website, whose home page was recently judged by NetFed to be the second-best in the Bundesliga.

Pay TV: In 2011 the company was the first Bundesliga club to offer its own TV package in co-operation with Deutsche Telekom. The subscription channel, BVB-TV, shows club videos, Bundesliga matches and all other competitive matches in full length. Current subscription costs are €1.99 a month.

Matchday operations (12% of FY19e pre-transfer revenue and -4% in FY18): Management regards Signal Iduna Park, Germany’s largest football stadium with capacity for 81,360, as its most valuable asset other than the team. Known as the Westfalenstadion until 2005, the facility was built for the 1974 World Cup but has since been extensively enlarged and modernised. With home matches sold out and a policy of inflation pricing as a community club, the scope for ticketing revenue growth seems limited. Apparent underachievement with the likes of Manchester United, where ticketing was 19% of FY18 revenue, is thus unfair; Bayern Munich’s 16% revenue share (FY18) is a better comparative. Two-thirds of capacity is pre-sold as season tickets, which brings revenue visibility, and an annual footfall of 1.4 million spectators at Bundesliga games brings ancillary income from merchandising and catering. The stadium is not multi-functional.

Broadcasting (46% of FY19e pre-transfer revenue and -3% in FY18): Marketing of media rights is conducted centrally by the Bundesliga and UEFA, hence outside company control. However, the system of revenue distribution to clubs is defined well in advance, with the Bundesliga agreeing in 2016 the sale of rights for four seasons from 2017/18 and UEFA selling rights on a three-year basis from 2018/19. Predictably, media rights have driven the 55% increase in league income over the last four years. Indeed, the rise in 2017/18 alone was a third, thanks to the new Bundesliga contracts (still predominantly with Sky Deutschland but no longer exclusively). From 2018/19 there should also be material benefit from UEFA distribution for the new Champions League cycle since the competition’s revised format, eg more ‘big name’ clubs and staggered viewing times, is aimed at boosting the appeal to broadcasters. The share for clubs competing in the group stage onwards is forecast by UEFA to increase by 50% to €1.95bn pa.

Management

The company’s senior management (see below) is backed by highly experienced members of the non-sports businesses and coaching staff.

Chief executive: Hans-Joachim Watzke. Before his appointment in 2005 Mr Watzke was treasurer of the football club. His contract runs to 2022. He is also the owner-founder of Watex, a leading manufacturer of protective clothing for industrial workers and firefighters.

Chief financial officer: Thomas Treß was appointed second managing director in 2005 and has been responsible for finance since 2006. His contract has also been extended to 2022. He was previously a partner at RölfsPartner, one of the leading business consultancies in Germany. He was awarded ‘CFO of the year 2013’ by the German Finance Magazin.

Sales & marketing and digitalisation: Carsten Cramer became a further managing director in 2018, having served as sales & marketing director since 2010. He joined from leading sports marketing agency Sportfive (now Lagardère Sports) where he served latterly as a team leader at BVB and then as senior VP with nationwide duties.

Sensitivities

The company’s business operations are dependent on sporting success. Weak performance could cause revenue to fall and affect the ability to attract and retain players and coaches. Participation in lucrative UEFA competitions cannot be relied on, although the club has qualified regularly and will benefit from broader Champions League access for Bundesliga teams.

While serious injuries cannot be foreseen, the club maintains a strong squad and minimises the risk of poor investment in new players by intensive scouting and medical examinations.

The company competes for a share of disposable consumer income, which may be eroded by economic downturn. However, attendance at home matches is resilient (much the highest in the Bundesliga) and ticket prices are lower than those of leading competitors. The increasing popularity of the Bundesliga is evident in a sharp rise in the value of future broadcast rights.

Dortmund is dependent on the strength and perception of its brand. While damage may impair its ability to attract sponsors, the company invests heavily to ensure consistent quality.

Long-term contracts with major sponsors give security independent of sporting performance.

Dortmund is subject to external governing bodies, eg the Bundesliga, DFB, UEFA and FIFA, which may change the structure of German and European football. In terms of finances, the company is in tune with a market subject to growing regulation, notably the break-even requirement for participation in UEFA competitions.

Negotiation and pricing of key media contracts are outside the company’s control and those contracts may change.

The company’s digital media strategy is still developing. Piracy and illegal live streaming may adversely affect its broadcasting and new media and mobile revenue.

The club is obliged to pay players and coaching staff in line with competitors. Labour costs have risen sharply, accounting for c 55% of its revenue excluding transfers, which is similar to key peers.

There is a potential conflict between sporting objectives and financial requirements, highlighted by an increased reliance on transfers.

Valuation

Asset-rich

The share price is at c 20% discount to a simple sum-of-the-parts valuation of €10.75/share (€9.5 before), based on estimated market value of players c €480m, per www.transfermarkt.de, adjusted to exclude Pulisic (sold) and Hakimi and Alcácer (on loan), brand value €481m (at May 2018 per Brand Finance) and financial position (€28m net cash at end FY19e).

This squad valuation necessarily does not allow for step changes in the value of emerging talent, which Dortmund is so adept at identifying and which is attracting the attention of major clubs at ever younger ages. Potential prodigies such as Balerdi and Gómez (Exhibit 5) may emulate the uplift (admittedly unrealised) of estimated €91m attributable to similarly youthful Sancho or the bumper realised returns on Dembélé and Pulisic. There may also be appreciation by established talent, eg last month’s triple signing of internationals (Brandt, Hazard and Schulz), which has already elicited clear upgrades on approval of their Dortmund prospects.

Dortmund’s success at value creation is evident in the 13% rise in value per share from €9.5 in our SOTP exercise in April 2018. At that point, the share price discount was twice the current level, reflecting major sporting uncertainties and a troubled season.

Indeed, the company’s transfer policy consistently generates substantial hidden reserves in player values. The past three years saw average capital gains of c €88m (our estimate), including the ‘exceptional’ Dembélé transaction, and the scope for further gains is high. The surplus of market value to net player assets is c €300m if the reported March 2019 carrying value of €180m is set against www.transfermarkt.de’s adjusted valuation of c €480m.

Beyond this is sustained transfer market buoyancy, shown by a doubling in spend to over €5bn in 2018/19 by the five major European leagues over the last four years (Exhibit 7). Consolidation in the season just ended is understandable after such a heady rise (30% in 2017/18 alone). This comes at a price in terms of player replacement, but Dortmund is a net seller.

Exhibit 7: Player transfer market spend by five major European leagues over last four years

Disposals do of course carry the threat of undue sporting detriment. With management’s objective to declare an annual net profit, the scale of intangible amortisation (over €60m pa) and operating cost pressures (we estimate pre-transfer negative EBITDA in Q319 despite 18% higher operating income) risk a disruptive volume of transactions. While we are satisfied, as above, that the company has the resources to meet such financial needs, it is reasonable to be wary about the sporting impact.

Low rated

Among listed peers, there is limited comparability with Dortmund in terms of valuation indicators. By far the largest by market cap, Manchester United offers very limited free float, while Juventus has a majority shareholder and sizeable net debt. Olympique Lyonnais’s renewed Champions League participation may allow a higher outturn this year (H1 EBITDA up 30%), although H218 included substantial transfer profit. Against available peer numbers BVB is rated the lowest in terms of EV/EBITDA and EV/Pre-transfer revenue.

Exhibit 8: Valuation comparison with major listed peers (EBITDA includes transfer activity)

EV

EBITDA

EV/EBITDA
(x)

Pre-transfer revenue

EV/Pre-transfer revenue (x)

Prospective (Y/E June 2019)

Borussia Dortmund

€747m

€105.0m

7.1

€370m

2.0

Manchester United

£2717m

£210m*

12.9

£622m*

4.4

Historic (Y/E June 2018)

Borussia Dortmund

€724m

€126.6m

5.7

€313m

2.3

Manchester United

£2683m

£195.2m

13.7

£590m

4.5

Juventus

€1910m

€121.5m

15.7

€402m

4.8

Olympique Lyonnais

€400m

€73.9m

7.2

€164m

2.4

Source: Company accounts. Note: *Midpoint of May guidance. Includes estimated €27m transfer gain.

Financials

FY19e: H1 was again a tale of two quarters (Exhibit 9). While Q1 lacked a bumper transfer, hence c 70% lower EBITDA y-o-y, the following period was unaffected by transfers and saw a rise in EBITDA (from €2m in Q218 to €31m), which was striking in the face of persistent wage pressure (+11%). Admittedly against a weak comparative, the three months to December saw an impressive 41% increase in pre-transfer revenue, driven by sporting success, ie 10 Bundesliga wins against two and top of the Champions League group table compared with just two points last time, and a favourable y-o-y fixture pattern. This led to a near doubling in TV marketing income from European competition. On-field buoyancy also permeated advertising, up 6% thanks to Champions League knockout bonuses, in addition to the benefit of newly enhanced virtual advertising to international audiences, and merchandising, up 8%. In Q3 the transfer of Pulisic broadly matched that of Aubameyang in the prior period, while Champions rather than Europa League involvement drove 18% higher pre-transfer income. Despite such quarterly volatility, we broadly retain our assumptions for this year (just €5m pre-transfer revenue upgrade) with no allowance for significant end of season dealings.

FY20e: Our forecasts for this period are also broadly maintained (€5m income upgrade is flow-through from this year). Transfer activity is expected to be on a par with the current year, as are operational factors, ie competition and broadcasting.

Exhibit 9: Revenue and profit analysis

Year end June (€m)

H118

Q318

Q418

FY18

H119

Q319

Q419e

FY19e

FY20e

Home matches

Bundesliga

8

6

3

17

9

5

3

17

17

Champions League

3

-

-

3

3

1

-

4

4

Europa League

-

2

-

2

-

-

-

-

-

Domestic cups

1

-

-

1

1

1

-

2

3

Revenue

Match operations:

Bundesliga

13.1e

9.2e

5.1e

27.4

14.8e

7.9e

5.2

27.9

28.5

Champions League

5.8e

-

-

5.8

6.0e

2.1e

-

8.1

8.2

Europa League

-

3.3e

-

3.3

-

-

-

-

-

Domestic cups

2.2e

-

-

2.2

0.7e

1.5e

-

2.2

5.0

Other

2.6e

0.3e

0.6e

3.5

5.9e

0.4e

0.5

6.8

6.3

Total

23.8

12.8

5.7

42.3

27.4

11.9

5.7

45.0

48.0

Broadcasting:

Bundesliga

43.4

21.6

23.0

88.0

48.4

24.1

25.5

98.0

103.0

Champions League

28.1

-

-

28.1

56.7

11.3

1.8

69.8

70.0

Europa League

-

2.9

0.7

3.6

-

-

-

-

-

Domestic cups

2.6

-

-

2.6

0.5

0.7

-

1.2

4.0

Total

74.1

24.5

23.7

122.3

105.6

36.0

27.3

169.0

177.0

Advertising

45.2

22.3

26.5

94.0

46.5

22.9

27.6

97.0

99.0

Merchandising

19.4

5.5

4.6

29.5

18.2

6.2

5.1

29.5

29.5

Catering/other

13.0

5.7

6.5

25.2

16.0

6.6

6.9

29.5

29.5

Revenue before transfers

175.6

70.9

67.0

313.3

213.6

83.7

72.6

370.0

383.0

Transfers

136.2**

72.6***

13.9

222.7

42.4

69.5

18.1

130.0

130.0

Total revenue

311.8

143.5

80.7

536.0

256.0

153.2

90.8

500.0

513.0

Other operating income

2.8

0.2

0.9

3.9

4.2

0.8

0.5

5.5

5.0

Labour costs

(94.3)

(45.0)

(47.4)

(186.7)

(101.3)

(52.1)

(50.6)

(204.0)

(214.0)

Material costs

(12.3)

(4.2)

(3.6)

(20.1)

(11.6)

(5.5)

(3.9)

(21.0)

(21.0)

Other operating costs

(124.2)

(49.9)

(32.4)

(206.5)

(93.3)

(45.3)

(36.9)

(175.5)

(173.0)

EBITDA

83.9

44.6

(1.9)

126.6

54.1

51.1

(0.2)

105.0

110.0

Source: Edison Investment Research. Note: ▲ Assuming Champions League round of 16 and DFB Cup semi-final. *Including disposal of Dembélé. **Including disposal of Aubameyang. ***Including disposals of Sokratis and Yarmolenko. ****Including disposal of Pulisic.

Exhibit 10: Financial summary

€'000s

2016

2017

2018

2019e

2020e

June

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

Revenue

 

 

376,300

405,700

536,000

500,000

513,000

EBITDA

 

 

86,700

74,100

126,600

105,000

110,000

Operating Profit (before amort. and except.)

75,900

62,600

115,500

94,000

99,000

Intangible Amortisation

(32,000)

(51,900)

(59,000)

(64,000)

(66,000)

Exceptionals

(7,500)

0

(20,400)

0

0

Other

0

0

0

0

0

Operating Profit

36,400

10,700

36,100

30,000

33,000

Net Interest

(2,100)

(1,500)

(4,300)

(1,000)

(1,000)

Other financial items

0

0

0

0

0

Profit Before Tax (norm)

 

 

73,800

61,100

111,200

93,000

98,000

Profit Before Tax (FRS 3)

 

 

34,300

9,200

31,800

29,000

32,000

Tax

(4,900)

(900)

(3,300)

(3,000)

(4,000)

Profit After Tax (norm)

62,700

51,900

94,500

79,100

83,300

Profit After Tax (FRS 3)

29,400

8,300

28,500

26,000

28,000

Minority interests

0

0

0

0

0

Net income (normalised)

62,700

51,900

94,500

79,100

83,300

Profit after tax (FRS3)

29,400

8,300

28,500

26,000

28,000

Average Number of Shares Outstanding (m)

92.0

92.0

92.0

92.0

92.0

EPS - normalised (c)

 

 

68.2

56.4

102.7

86.0

90.5

EPS - (IFRS) (c)

 

 

32.0

9.0

31.0

28.3

30.4

Dividend per share (c)

6.0

6.0

6.0

6.0

6.0

EBITDA Margin (%)

23.0

18.3

23.6

21.0

21.4

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

20.2

15.4

21.5

18.8

19.3

BALANCE SHEET

Fixed Assets

 

 

302,800

354,900

341,900

392,000

418,000

Intangible Assets

65,300

141,500

109,700

165,000

190,000

Tangible Assets

188,400

184,700

180,700

180,000

178,000

Investments

49,100

28,700

51,500

47,000

50,000

Current Assets

 

 

121,800

123,700

136,400

99,000

95,000

Stocks

10,200

9,000

5,600

6,000

6,000

Debtors

51,100

48,800

23,000

28,000

28,000

Cash

51,700

49,300

59,500

35,000

26,000

Other

8,800

16,600

48,300

30,000

35,000

Current Liabilities

 

 

(78,800)

(140,900)

(119,000)

(112,000)

(112,000)

Creditors

(76,200)

(130,600)

(117,000)

(112,000)

(112,000)

Short term borrowings

0

0

0

0

0

Finance leases

(2,600)

(10,300)

(2,000)

0

0

Long Term Liabilities

 

 

(36,200)

(25,400)

(23,000)

(22,000)

(22,000)

Long term borrowings

0

0

0

0

0

Finance leases

(19,000)

(8,700)

(6,700)

(7,000)

(7,000)

Other long term liabilities

(17,200)

(16,700)

(16,300)

(15,000)

(15,000)

Net Assets

 

 

309,600

312,300

336,300

357,000

379,000

CASH FLOW

Operating Cash Flow

 

 

44,400

117,900

163,500

115,000

130,000

Net Interest

(1,400)

(2,100)

(3,700)

(1,000)

(1,000)

Tax

(300)

(5,500)

(1,700)

(3,000)

(4,000)

Capex

(9,400)

(8,100)

(7,200)

(8,300)

(8,500)

Acquisitions/disposals

(20,500)

(96,500)

(123,600)

(120,000)

(120,000)

Financing

(7,700)

0

(1,300)

0

0

Dividends

(4,600)

(5,500)

(5,500)

(5,500)

(5,500)

Net Cash Flow

500

200

20,500

(22,800)

(9,000)

Opening net debt/(cash)

 

 

(29,600)

(30,100)

(30,300)

(50,800)

(28,000)

Finance leases initiated

0

0

0

0

0

Other

0

0

0

0

0

Closing net debt/(cash)

 

 

(30,100)

(30,300)

(50,800)

(28,000)

(19,000)

Source: Borussia Dortmund, Edison Investment Research

Contact details

Revenue by geography

11 Rheinlanddamm 207-209
D-44137 Dortmund
Germany
+49 (0) 231 90 20 745
www.bvb.de/aktie

N/A

Contact details

11 Rheinlanddamm 207-209
D-44137 Dortmund
Germany
+49 (0) 231 90 20 745
www.bvb.de/aktie

Revenue by geography

N/A

Management team

Chief Executive: Hans-Joachim Watzke

Chief Financial Officer: Thomas Treß

Before his appointment in 2005, Mr Watzke had been treasurer of the football club for four years. His contract as CEO runs to the end of 2022. He is also the owner-founder of Watex, a leading manufacturer of protective clothing for industrial workers and firefighters.

Thomas Treß was appointed second managing director in 2005 and has been responsible for finance since the start of 2006. His contract has been extended to June 2022. He was previously a partner at RölfsPartner, one of the leading business consultancies in Germany. He was awarded ‘CFO of the year 2013’ by the German Finance Magazin.

Sales & Marketing and Digitalisation: Carsten Cramer

Carsten Cramer recently joined the board in 2018, having served as sales & marketing director since 2010. He was previously at leading sports marketing agency Sportfive (now Lagardère Sports) where he served latterly as a team leader at BVB and then as senior VP with nationwide duties.

Management team

Chief Executive: Hans-Joachim Watzke

Before his appointment in 2005, Mr Watzke had been treasurer of the football club for four years. His contract as CEO runs to the end of 2022. He is also the owner-founder of Watex, a leading manufacturer of protective clothing for industrial workers and firefighters.

Chief Financial Officer: Thomas Treß

Thomas Treß was appointed second managing director in 2005 and has been responsible for finance since the start of 2006. His contract has been extended to June 2022. He was previously a partner at RölfsPartner, one of the leading business consultancies in Germany. He was awarded ‘CFO of the year 2013’ by the German Finance Magazin.

Sales & Marketing and Digitalisation: Carsten Cramer

Carsten Cramer recently joined the board in 2018, having served as sales & marketing director since 2010. He was previously at leading sports marketing agency Sportfive (now Lagardère Sports) where he served latterly as a team leader at BVB and then as senior VP with nationwide duties.

Principal shareholders

(%)

Evonik Industries

14.8

Bernd Geske

9.3

Borussia Dortmund

5.5

Signal Iduna

5.4

Puma

5.0

Companies named in this report

Bayern Munich, Real Madrid, Manchester United, Juventus, Atlético Madrid, Barcelona, PSG, Chelsea, Puma, Evonik, Signal Iduna

General disclaimer and copyright

This report has been commissioned by Borussia Dortmund and prepared and issued by Edison, in consideration of a fee payable by Borussia Dortmund. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, 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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Borussia Dortmund and prepared and issued by Edison, in consideration of a fee payable by Borussia Dortmund. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, 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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Share this with friends and colleagues