Borussia Dortmund |
“We’re absolutely not satisfied” |
Revised forecasts |
Travel & leisure |
11 June 2018 |
Share price performance
Business description
Next events
Analysts
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
While uncertainty about a head coach and Champions League qualification has been satisfactorily resolved, there is no denying the challenge for Borussia Dortmund (BVB) in making a fresh start after its most difficult season since near-bankruptcy. Without pre-empting new coach Favre, who takes over in July, radical change in the squad make-up and size has already been indicated by management. Likely enhanced transfer activity should therefore support our FY19 EBITDA forecast despite lower pre-transfer income expectations (still up 11%) on greater clarity of Champions League payout. However, for the current year no such transfer offset is assumed (admittedly cautious), hence our 13% EBITDA downgrade.
Year end |
Revenue* (€m) |
EBITDA |
PBT** |
EPS** |
DPS |
EV/EBITDA |
06/16 |
281.3 |
86.7 |
73.8 |
0.68 |
0.06 |
5.8 |
06/17 |
328.4 |
74.1 |
61.1 |
0.56 |
0.06 |
6.8 |
06/18e |
315.0 |
117.0 |
100.0 |
0.92 |
0.06 |
4.3 |
06/19e |
350.0 |
87.0 |
73.0 |
0.68 |
0.06 |
5.8 |
Note: *Before player transfer income **PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Q3: Tough going on and off the pitch
After the early Christmas gift of immediate wins under coach Stöger, the quarter to March saw renewed stability flatter to deceive, culminating in a bumpy Europa League run and a 6-0 “thrashing” by Bayern. This was reflected in flat pre-transfer revenue, despite two more home matches (eight against six). Broadcasting was redeemed by the new deal on domestic TV marketing, which made up for no Champions League and DFB Cup. While advertising was again encouraging (up 8%), marked by new Champion Partners, there was a further fall in merchandising (down 17%). By contrast, a resurgent EBITDA (€44.6m vs €0.7m) was testament to Dortmund’s sustained ability to generate high levels of transfer income (€73m, notably from the sale of Aubameyang to Arsenal).
Caution in order but likely salved by transfers
While squad rebuilding may well elicit transfer gains, we now highlight our lower operating expectations. As shown on page 2, there is a small cut in our pre-transfer revenue forecasts (5% this year and 7% next).This reflects the recent troubled season and for FY19e a better view of Champions League distribution after UEFA clarification. For the year just ending, this drives an EBITDA downgrade of €18m, assuming no material pre-year end dealings. However, for FY19e, as change is in the air, we are now more positive about transfer gains and labour costs (conceivably lower, for a change), hence our marginally raised EBITDA forecast.
Valuation: Fair
Caution apart, coach Favre’s record of player development (not least of Reus and Piszczek at Gladbach and Hertha respectively) and the availability of significant funds for reinvestment make for exciting opportunity. News of c 50,000 season ticket requests alone shows the enduring brand and financial strengths of BVB.
Revenue and profit analysis
Exhibit 1: Revenue and profit analysis |
|||||||||
Year end June (€m) |
H117 |
Q317 |
Q417 |
FY17 |
H118 |
Q318 |
Q418e |
FY18e |
FY19e |
Home matches |
▲ |
||||||||
Bundesliga |
8 |
4 |
5 |
17 |
8 |
6 |
3 |
17 |
17 |
Champions League |
3 |
1 |
1 |
5 |
3 |
- |
- |
3 |
4 |
Europa League |
- |
- |
- |
- |
- |
2 |
- |
2 |
- |
Domestic cups |
2 |
1 |
- |
3 |
1 |
- |
- |
1 |
2 |
Away matches: |
|||||||||
Champions League |
3 |
1 |
1 |
5 |
3 |
- |
- |
3 |
4 |
Europa League |
- |
- |
- |
- |
- |
2 |
- |
2 |
- |
Domestic cups |
1 |
1 |
1+Final |
3+Final |
3 |
- |
- |
3 |
3 |
Revenue |
|||||||||
Match operations: |
|||||||||
Bundesliga |
12.9e |
6.3e |
7.7e |
27.0 |
13.1e |
9.1e |
4.8e |
27.0 |
27.5 |
Champions League |
5.7e |
1.9e |
1.9e |
9.5 |
5.9e |
- |
- |
5.9 |
8.0 |
Europa League |
- |
- |
- |
- |
- |
3.4e |
- |
3.4 |
- |
Domestic cups |
2.1e |
1.2e |
2.0e |
5.3 |
1.7e |
- |
- |
1.8 |
3.5 |
Other |
1.6e |
0.4e |
0.2e |
2.2 |
3.1e |
0.3e |
0.9e |
4.3 |
2.5 |
Total |
22.3 |
9.8 |
11.8 |
43.9 |
23.8 |
12.8 |
5.8 |
42.4 |
41.5 |
Broadcasting: |
|||||||||
Bundesliga |
32.5 |
16.2 |
17.4 |
66.1 |
43.4 |
21.6 |
23.0 |
88.0 |
92.0 |
Champions League |
33.6 |
8.1 |
8.4 |
50.1 |
27.4 |
- |
- |
27.4 |
53.0 |
Europa League |
0.9 |
- |
- |
0.9 |
- |
2.9 |
- |
2.9 |
- |
Domestic cups |
1.3 |
1.5 |
5.8 |
8.6 |
3.3 |
- |
- |
3.3 |
4.5 |
Total |
68.3 |
25.8 |
31.7 |
125.8 |
74.1 |
24.5 |
23.0 |
121.6 |
149.5 |
Advertising |
40.1 |
20.7 |
26.6 |
87.4 |
45.2 |
22.3 |
26.5 |
94.0 |
96.0 |
Merchandising |
23.2 |
6.5 |
9.8 |
39.5 |
19.4 |
5.5 |
8.1 |
33.0 |
36.0 |
Catering/other |
15.2 |
7.4 |
9.3 |
31.9 |
13.0 |
5.7 |
5.3 |
24.0 |
27.0 |
Revenue before transfers |
169.0 |
70.3 |
89.1 |
328.4 |
175.6 |
70.9 |
68.5 |
315.0 |
350.0 |
Transfers |
45.2* |
1.0 |
31.1 |
77.3 |
136.2** |
72.6*** |
6.2 |
215.0 |
90.0**** |
Total revenue |
214.2 |
71.3 |
120.2 |
405.7 |
311.8 |
143.5 |
74.7 |
530.0 |
440.0 |
Other operating income |
1.7 |
0.3 |
2.2 |
4.2 |
2.8 |
0.2 |
2.0 |
5.0 |
5.0 |
Labour costs |
(82.2) |
(41.7) |
(54.0) |
(177.9) |
(94.3) |
(45.0) |
(50.7) |
(190.0) |
(180.0) |
Share of revenue |
49% |
59% |
61% |
54% |
54% |
63% |
74% |
60% |
51% |
Material costs |
(14.4) |
(4.7) |
(6.8) |
(25.9) |
(12.3) |
(4.2) |
(5.5) |
(22.0) |
(24.0) |
Other operating costs |
(69.3) |
(24.4) |
(38.3) |
(132.0) |
(124.2) |
(49.9) |
(31.9) |
(206.0) |
(154.0) |
EBITDA |
49.9 |
0.7 |
23.5 |
74.1 |
83.9 |
44.6 |
(11.5) |
117.0 |
87.0 |
Source: Edison Investment Research. Note: ▲ Assuming Champions League round of 16 and DFB Cup semi-final. *Including disposal of Mkhitaryan. **Including disposals of Dembélé, Bender, Mor and Bartra. ***Including disposal of Aubameyand. ****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 |
||
June |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Revenue |
|
|
376,300 |
405,700 |
530,000 |
440,000 |
EBITDA |
|
|
86,700 |
74,100 |
117,000 |
87,000 |
Operating Profit (before amort. and except.) |
75,900 |
62,600 |
105,000 |
75,000 |
||
Intangible Amortisation |
(32,000) |
(51,900) |
(60,000) |
(60,000) |
||
Exceptionals |
(7,500) |
(100) |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
||
Operating Profit |
36,400 |
10,600 |
45,000 |
15,000 |
||
Net Interest |
(2,100) |
(1,500) |
(5,000) |
(2,000) |
||
Other financial items |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
73,800 |
61,100 |
100,000 |
73,000 |
Profit Before Tax (FRS 3) |
|
|
34,300 |
9,100 |
40,000 |
13,000 |
Tax |
(4,900) |
(900) |
(5,000) |
(1,000) |
||
Profit After Tax (norm) |
62,700 |
51,900 |
85,000 |
62,100 |
||
Profit After Tax (FRS 3) |
29,400 |
8,200 |
35,000 |
12,000 |
||
Minority interests |
0 |
0 |
0 |
0 |
||
Net income (normalised) |
62,700 |
51,900 |
85,000 |
62,100 |
||
Profit after tax (FRS3) |
29,400 |
8,200 |
35,000 |
12,000 |
||
Average Number of Shares Outstanding (m) |
92.0 |
92.0 |
92.0 |
92.0 |
||
EPS - normalised (c) |
|
|
68.2 |
56.4 |
92.4 |
67.5 |
EPS - (IFRS) (c) |
|
|
32.0 |
8.9 |
38.0 |
13.0 |
Dividend per share (c) |
6.0 |
6.0 |
6.0 |
6.0 |
||
EBITDA Margin (%) |
23.0 |
18.3 |
22.1 |
19.8 |
||
Operating Margin (before GW and except.) (%) |
20.2 |
15.4 |
19.8 |
17.0 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
302,800 |
354,900 |
371,000 |
368,000 |
Intangible Assets |
65,300 |
141,500 |
163,000 |
158,000 |
||
Tangible Assets |
188,400 |
184,700 |
178,000 |
175,000 |
||
Investments |
49,100 |
28,700 |
30,000 |
35,000 |
||
Current Assets |
|
|
121,800 |
123,700 |
129,000 |
137,000 |
Stocks |
10,200 |
9,000 |
8,000 |
8,000 |
||
Debtors |
51,100 |
48,800 |
36,000 |
40,000 |
||
Cash |
51,700 |
49,300 |
60,000 |
59,000 |
||
Other |
8,800 |
16,600 |
25,000 |
30,000 |
||
Current Liabilities |
|
|
(78,800) |
(140,900) |
(135,000) |
(136,000) |
Creditors |
(76,200) |
(130,600) |
(133,000) |
(134,000) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
||
Finance leases |
(2,600) |
(10,300) |
(2,000) |
(2,000) |
||
Long Term Liabilities |
|
|
(36,200) |
(25,400) |
(24,000) |
(22,000) |
Long term borrowings |
0 |
0 |
0 |
0 |
||
Finance leases |
(19,000) |
(8,700) |
(7,000) |
(7,000) |
||
Other long term liabilities |
(17,200) |
(16,700) |
(17,000) |
(15,000) |
||
Net Assets |
|
|
309,600 |
312,300 |
341,000 |
347,000 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
44,400 |
12,200 |
(29,000) |
2,000 |
Net Interest |
(1,400) |
(2,000) |
(3,800) |
(2,200) |
||
Tax |
(300) |
(5,500) |
(3,000) |
(6,000) |
||
Capex |
(9,400) |
(8,100) |
(8,000) |
(9,300) |
||
Acquisitions/disposals |
(20,500) |
9,100 |
70,000 |
20,000 |
||
Financing |
(7,700) |
0 |
0 |
0 |
||
Dividends |
(4,600) |
(5,500) |
(5,500) |
(5,500) |
||
Net Cash Flow |
500 |
200 |
20,700 |
(1,000) |
||
Opening net debt/(cash) |
|
|
(29,600) |
(30,100) |
(30,300) |
(51,000) |
Finance leases initiated |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(30,100) |
(30,300) |
(51,000) |
(50,000) |
Source: Company accounts, Edison Investment Research
|
|