The Odd and Continuing Saga of Manchester United

The Odd and Continuing Saga of Manchester United

Recently listed Manchester United PLC (NYSE:MANU) is trading at $13.25, quite below its IPO issue price of $14. The football club has been initiated for coverage by Bank of America Merrill Lynch (BAML) and Credit Suisse Group AG (NYSE:CS).

BAML maintain an initial opinion of a Neutral rating and a price objective of $15, which is likely to be achieved within 12 months. Plus factors for the stock are the club’s “high growth profile, pure play sports status, and scarcity/trophy value.” Risk factors include “variability surrounding on-field performance, wage costs, and less visible commercial opportunities.” Its global fan base and the increasing value of sports content are also other positives.

Credit Suisse Group AG (NYSE:CS) is far more bullish on the prospects of the stock. They maintain an Outperform rating and an $18 target price based on their DCF model. The rating is based on the likelihood of “secular growth in premium content and new monetization opportunities (sponsorships, digital media, etc.)”, resulting in better margins and an above-average growth in the top line. However, on-field performance is a swing factor.

These opinions come regardless of the fact that the Club used the provisions of the JOBS Act to push through its IPO, by registering as Red Football Shareholder, a Cayman Island start-up, and describing itself as a growth company to avail of the JOBS Act. The IPO was far from smooth, and the initial price of $16-$20 was adjusted to $14 to enable the sale of 1.7 million shares. It may be noted that the company has warned of no dividends in the foreseeable future, and that the Glazer will effectively control the company regardless of the share sale. About half the capital raised in the IPO will go to the Glazers, even though they continue to retain absolute operating control.

Credit Suisse in their initiation report, do not comment on the JOBs Act, but do justify the dual share structure stating (emphasis ours):

Similar to some Media and Internet companies, MANU has a dual-class share structure that allows the Glazer Family to maintain majority voting control. Each Class B share carries 10 votes versus 1 vote per Class A share. The SEC filing also notes that Class B shares will maintain at least 67% of voting power in the future. Following the IPO, the Glazer’s Class A and Class B shares accounted for 98.7% of the voting rights.

Nevertheless, the club has received investment from the legendary hedge fund manager George Soros, whose recent 13G filing shows that he owns over 3 million Class A shares, or 7.85% of Manchester United PLC (NYSE:MANU), making him one of the largest shareholders of the team. Coming from an investor of his stature, this is surely one contrarian bet to watch out for.

Finally, the whole Manchester United PLC (NYSE:MANU) IPO saga seems a bit odd, but we will just have to watch and see how the stock does over the long term.