Plenty in reserve

Borussia Dortmund 4 October 2017 Review
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Borussia Dortmund

Plenty in reserve

Company and estimates update

Travel & leisure

4 October 2017

Price

€8.17

Market cap

€752m

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

30.3

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

11.8

37.2

68.4

Rel (local)

5.2

32.6

37.2

52-week high/low

€8.2

€4.8

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 League (quarter-finalists in 2016/17).

Next events

Edison London roadshow

5 October 2017

Champions League against APOEL

17 October and

1 November 2017

Q1 results

14 November 2017

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

Borussia Dortmund enters the international break in good heart as wire-to-wire leaders of the Bundesliga after a record start to the season (19 points after seven games). It is early days but confirmation of a favourable reaction to new coach Peter Bosz and key player signings even if found wanting at the highest level in recent Champions League. A positive annual report and the remarkable sale of Dembélé to Barcelona further prompt us to raise substantially our current-year forecast. For FY19 we are confident that Dortmund’s conspicuously successful development record and transfer policy as well as initial benefits from Champions League reform should generate another strong outturn, even if Dembélé makes FY18 a hard act to follow.

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

8.3

06/17

328.4

74.1

61.1

0.56

0.06

9.7

06/18e

340.0

102.0

88.5

0.82

0.07

6.6

06/19e

380.0

97.0

83.5

0.77

0.07

6.6

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

Q417: Dortmund shows how to finish

The quarter to June was notable for 21% pre-transfer revenue growth, reflecting favourable UEFA comparatives (continuing involvement in Champions rather than Europa League) and DFB Cup triumph, all the more satisfying so soon after the team bus attack. Progress was across the board, driven by double-digit increases in broadcasting and merchandising and a boost to advertising from year-end sporting bonuses. On-field success came inevitably at a price with labour costs up almost 40%. Finances were again disciplined with net cash unchanged at €30m.

Hidden reserves fuel upgrades

The Dembélé deal not only all but guarantees record gross EBITDA in the current year but acts as a reference sale for Dortmund’s sustained ability to generate high levels of transfer income, hopefully without sporting detriment. The raising of our FY18 gross EBITDA forecast from €87m to €102m is thus transfer-led with marginal uplift to pre-transfer revenue. Champions League Round of 16 is factored in to our forecasts, so failure to reach the knockout stage (Dortmund has lost its first two group matches) would be a blow. However, likely involvement in the Europa League would mitigate this. Transfer gains are also to the fore in our newly introduced FY19 forecast (we assume on a par with the average of the previous three years excluding some impact from exceptional Dembélé), but there should also be a sizeable boost in broadcasting income from the revamped Champions League (tba by UEFA).

Valuation: Seller’s market

Dembélé’s move has been a catalyst for market awareness of Dortmund’s riches (share price up 40% in last two months). We do not expect this to abate, given the scale of the remaining surplus of market value to net player assets (broadly, c €250m per www.transfermarkt.de) and further lively player transfer inflation.

Exhibit 1: Financial summary

€'000s

2016

2017

2018e

2019e

June

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

376,300

405,700

505,000

462,000

EBITDA*

 

 

86,700

74,100

102,000

97,000

Operating Profit (before amort. and except.)

75,900

62,600

90,000

85,000

Intangible Amortisation

(32,000)

(51,900)

(64,000)

(65,000)

Exceptionals

(7,500)

(100)

0

0

Other

0

0

0

0

Operating Profit

36,400

10,600

26,000

20,000

Net Interest

(2,100)

(1,500)

(1,500)

(1,500)

Other financial items

0

0

0

0

Profit Before Tax (norm)

 

 

73,800

61,100

88,500

83,500

Profit Before Tax (FRS 3)

 

 

34,300

9,100

24,500

18,500

Tax

(4,900)

(900)

(3,500)

(2,500)

Profit After Tax (norm)

62,700

51,900

75,200

71,000

Profit After Tax (FRS 3)

29,400

8,200

21,000

16,000

Minority interests

0

0

0

0

Net income (normalised)

62,700

51,900

75,200

71,000

Profit after tax (FRS3)

29,400

8,200

21,000

16,000

Average Number of Shares Outstanding (m)

92.0

92.0

92.0

92.0

EPS - normalised (c)

 

 

68.2

56.4

81.7

77.2

EPS - (IFRS) (c)

 

 

32.0

8.9

22.8

17.4

Dividend per share (c)

6.0

6.0

7.0

7.0

EBITDA Margin (%)

23.0

18.3

20.2

21.0

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

20.2

15.4

17.8

18.4

BALANCE SHEET

Fixed Assets

 

 

302,800

354,900

322,000

295,000

Intangible Assets

65,300

141,500

120,000

95,000

Tangible Assets

188,400

184,700

182,000

180,000

Investments

49,100

28,700

20,000

20,000

Current Assets

 

 

121,800

123,700

159,000

191,000

Stocks

10,200

9,000

10,000

10,000

Debtors

51,100

48,800

50,000

50,000

Cash

51,700

49,300

95,000

127,000

Other

8,800

16,600

4,000

4,000

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

327,000

336,000

CASH FLOW

Operating Cash Flow

 

 

44,400

12,200

12,000

37,000

Net Interest

(1,400)

(2,000)

(1,500)

(1,500)

Tax

(300)

(5,500)

(3,300)

(3,100)

Capex

(9,400)

(8,100)

(9,000)

(9,000)

Acquisitions/disposals

(20,500)

9,100

54,000

15,000

Financing

(7,700)

0

0

0

Dividends

(4,600)

(5,500)

(5,500)

(6,400)

Net Cash Flow

500

200

46,700

32,000

Opening net debt/(cash)

 

 

(29,600)

(30,100)

(30,300)

(77,000)

Finance leases initiated

0

0

0

0

Other

0

0

0

0

Closing net debt/(cash)

 

 

(30,100)

(30,300)

(77,000)

(109,000)

Source: Borussia Dortmund accounts, Edison Investment Research. Note: *EBITDA calculation includes player transfer income in line with the company’s reporting approach; player transfers have previously been excluded from our calculation of EBITDA.

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 Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. 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 Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. 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

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) 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 Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. 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 Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. 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

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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