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Research: Investment Companies
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.
Written by
Borussia Dortmund |
Plenty in reserve |
Company and estimates update |
Travel & leisure |
4 October 2017 |
Share price performance
Business description
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Borussia Dortmund is a client of Edison Investment Research Limited |
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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 |
PBT** |
EPS** |
DPS |
EV/EBITDA |
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.
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Research: Metals & Mining
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