Analysts Diverge on Manchester United Stock Outlook

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LONDON - Two high-profile Wall Street entertainment analysts on Tuesday started their coverage of the stock of English soccer powerhouse Manchester United, which recently went public, with confidence in the team's revenue growth potential.

But they had diverging views on the upside for the stock, which has been facing some investor questions since the club's IPO at $14 last month.

On Friday, shares of the most valuable sports franchise in the world, known as the Red Devils, closed at $13.30, giving Man U a market value of $2.18 billion. The stock has traded between $12.80 and $15.27 since its launch.

Credit Suisse analyst Spencer Wang on Tuesday issued a bullish note that initiated coverage of Manchester United's stock with an "outperform" rating and $18 price target.

In his report, entitled "Goooaaal!," he wrote: "As a leading global sports brand and content owner, Manchester United, in our view, is well positioned to capitalize on secular growth in premium content and new monetization opportunities (sponsorships, digital media etc), which should result in above average top-line growth and expanding margins."

Also, soccer is the most global sport, "providing exposure to growth in emerging markets," he argued. "As the leading club, we believe Man U has competitive advantages that can create a virtuous cycle."

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But Nomura analyst Michael Nathanson took a different view, launching coverage of the soccer club's stock with a "neutral" and a $13 target price.

In his report, entitled, "Devils in the Details," he wrote: "While there is much to like about the company’s revenue model and near-term growth prospects, we remain cautious about the potential of greater-than-expected player cost inflation and valuation."

On the TV upside, he said that "Manchester United’s revenues are set to benefit from the growing structural value of live sports media rights in an increasingly time-shifted and fragmented world combined with the symbiotic appreciation of team sponsorship opportunities."

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Nathanson estimated that revenue would grow by a 14 percent compound annual growth rate from 2012 through 2015 "due to a number of well defined, contractual drivers, including a 50 percent step-up in global Premier League media rights in fiscal year 2014, a 20 percent step-up in global UEFA Champions League rights in 2013 and a £30 million step-up in shirt and training kit sponsorship over this time frame."

But he expressed concern that much of the revenue growth "will be consumed by player salaries and transfer payments." Over the past 18 years, 50 percent of revenue growth was consumed by increases in salary costs, he said.

Summarized Nathanson: "While we have long valued the growing impact of live sports on the media ecosystem, these aforementioned factors keep us at 'neutral'."

Email: Georg.Szalai@thr.com
Twitter: @georgszalai