Manchester United IPO: Shoots And Scores Or A Kick To The Gut?

(By Rich Bieglmeier) The world's most valued sports franchise, Manchester United, is scheduled to debut trading as early as this Friday – August 10, 2012. There have been a lot of red cards tossed about by angry fans, underwriters in Singapore and Hong Kong, and Morgan Stanley in the states prior the first whistle to commence trading.
 
Heck, even the current underwriters can't decide what sort of company ManU is. Is it a media company like Walt Disney Co. (DIS), an e-commerce company like Amazon.com Inc. (AMZN) (can't stop laughing about that one), or a retail brand like Michael Kors Holdings Ltd. (KORS)?
 
iStock says it depends on how you measure it. As a company, they account for revenue through three principal segments, Commercial, Broadcasting and Matchday.
 
Of the three, the maximum growth will come from the Commercial division, which itself is divided up in three ways,
 
 
Each is growing nicely; sponsorship grew 9.9% in 2010 and by 34% in 2011. Retail is more consistent, expanding by 13.7% in 2010 and 18.1% in 2011. Meanwhile, new media is on fire, leaping 80% in 2010 and 73.7% in 2011.
 
Sponsorship is the largest slice of the Commercial division, accounting for 53% of 2011 total department revenues of £103.4 million, and the jump from £40.9 million in 2010 to £54.9 million in 2011 accounts for half of the segment's growth.
 
Retail books 30.3% of the commercial pie and contributed an extra £4.8 million in 2011. Finally, new media and mobile provided 16.7% of the group's revenue, gaining £7.3 million year-over-year.
 
Broadcasting revenue was £98.0 million, £103.3 million and £117.2 million for each of the years ended June 30, 2009, 2010 and 2011, respectively; up 5.4% in 2010 and 13.5% in 2011.
 
Meanwhile, matchday revenues have bounced around, but remain somewhat steady posting £114.5 million in 2009, £105.8 million in 2010 and £110.8 million for 2011.
 
The three entities totaled £331.4 million in 2011. So, to give you iStock's answer to what kind of company is Manchester United? Based on the three choices outlined above, we think the best fit is Walt Disney Co. (DIS).
 
From an investor's point of view, the $3.3 billion question is how does the football or fútbol club stack up against Disney?
 
At the high end of the IPO's pricing, Wayne Rooney's team will have a market cap of roughly $3.3 billion. That's dollars; however, substantially all of the club's costs and financials are denominated in the pound sterling (in case you didn't notice the squiggly £ already).
 
To put it into English, English, according to Google, 1 U.S. dollar = 0.63848806 British pounds, which gives Manchester a market cap of approximately £2.11 billion. That means the company will start trading at 6.36 times sales, much higher than DIS at 2.14 times sales. The industry average is even lower at 0.94 times sales.
 
On an EBITDA basis, Disney trades at a multiple of 8.78, while Manchester, at $20 per share, will trade for roughly 19 times 2011 EBITDA. The peer norm is close to 10 times EBITDA.
 
Compared to the industry and Disney, Manchester is priced to a premium, and iStock agrees with underwriters that the other football team - or is American football the other football? – deserves a slight benefit.
 
On average, the industry's year-over-year revenue growth is 13% versus Manchester's 15.7%, which is about 21% faster clip, but nothing that warrants proposed valuations. iStock believes a fairer price would be 12-13x EBITDA, pricing the stock between $13 and $14, not $16 - $20.
 
The word is that the Manchester United's IPO is oversubscribed, mostly thanks to U.S. based individual investors, weird considering soccer's place in the American professional sports' food chain.
 
iStock would not be buyers of the highly anticipated initial public offering as investors; however, as a novelty and a piece of the celebrity sports culture, that's different.