Manchester United: Still Worth Investing In Despite Unlikely UEFA Participation?

In a report issued Tuesday, Credit Suisse analysts Omar Sheikh, N. Anthony Nemoto and Lawrence Dann-Fenwick trimmed their target price on shares of Manchester United PLC MANU from $25 to $20, even though they reiterated an Outperform rating. They explained that, even though they now expect 2017 earnings to be 25 percent lower than that they originally anticipated, they remain bullish on the company’s capacity of delivering robust long term growth “from commercial exploitation of its brand, and regard the current valuation as compelling.”

So, What’s Changed?

Manchester United currently holds the 6th place in the English Premier League; in order to qualify for next season's UEFA Champions League tournament, it needs to ascent at least two spots. While, mathematically, the team still has chances, the experts at Credit Suisse are assuming it will not achieve it.

On the other hand, however, they do assume the team will play in the Europa League, which reduces the net impact to EBITDA.

Taking into account the aforementioned factors and higher player amortization, they decided to increase their 2016 EPS forecast by 8 percent, while reducing their 2017 EPS forecast by 25 percent. Nonetheless, they noted, revenues will still surge by 8 percent year-over-year, in 2017, mainly on the back of the new EPL contract. The firm is now modeling EPS of £0.19 (about $0.26) for 2016 and EPS of £0.30 ($0.42) for 2017.

Commercial Opportunities Remain

Despite what was said above, Credit Suisse still sees considerable upside risk to its projections from the exploitation of the Club's brand through retail, licensing and e-commerce, the note assured. The analysts continue to expect Commercial revenues to roughly double to £389 million ($548 million) by 2020 -- from approximately £200m in 2015. However, they pointed out to conclude, their forecast includes only £43 million of retail/e-commerce sales.


Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.

Posted In: Credit SuisseLawrence Dann-FenwickN. Anthony NemotoOmar SheikhAnalyst ColorLong IdeasEurozonePrice TargetReiterationMarketsAnalyst RatingsTrading Ideas