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Contributing to important causes is at the heart of investing, and it doesn’t get more emotional than investing in your favourite sports team. Fans, and owners of Manchester United (NYSE:MANU) shares, have had a roller-coaster year as club owners hinted at a sale in November 2022. But what’s next?
Context
Manchester United is one of the largest sports franchises in the world. Owned by the Glazer family since 2005, the company is 90% private, with 10% listed on the NYSE (New York Stock Exchange.).
The ownership has grown increasingly unpopular with the team underperforming on the pitch, winning no trophies since 2017. At the same time, rival teams have invested heavily on and off the pitch. This has left Manchester United with a stadium in desperate need of upgrade, a team in development, and an uncertain future.
What’s happening?
In November, the club’s owners announced they were exploring ‘strategic alternatives’. Since then, two key parties have emerged. INEOS founder Sir Jim Ratcliffe, Britain’s richest man, is looking to purchase 60% of the club, allowing the current owners to remain in a reduced capacity. The other main party is Sheikh Jassim Bin Hamad Al Thani. The Chairman of Qatar Islamic Bank is looking to acquire 100% of the club and clear all outstanding debts. Minority investment is possible, alongside the current owners remaining in place. However, with club debts now climbing above £725m, it appears that something needs to happen eventually.
Manchester United shares have been highly volatile over this period. Rumours and news updates have suggested a variety of outcomes are imminent almost weekly. But with the football season now underway, no final decision has been made.
What about the fundamentals?
As I wrote back in February, the balance sheet of the company is not in a good place. The club has less than a year of cash available based on current free cash flow. It is also unprofitable, and has a growing debt burden. By considering the future cash flow, a fair value of $7.88 is calculated. As a result, the shares could be as much as 191% overvalued!
Despite this, with the rising global popularity of football, and upcoming World Cup Finals in the US, there is a suggestion that the ownership believe that growth is ahead for the sector. The recent sale of the Washington Commanders for $6.05bn will strengthen the case that, despite rocky fundamentals, the brand value and potential for global sporting institutions is still enormous.
Am I buying?
An investment in Manchester United shares then is effectively speculation that a takeover will be completed imminently. If a deal collapses, or if only minority investment is realised, the share price would likely fall back to levels seen before the takeover rumours began. However, if rumoured acquisition prices are to be believed, there may be some tremendous growth in the share price ahead.
I am holding onto my investment in Manchester United shares from earlier in the year. However, I am acutely aware that this is a highly speculative investment.
