Warming up

Borussia Dortmund 5 October 2016 Update

Borussia Dortmund

Warming up

Annual report

Travel & leisure

5 October 2016

Price

€4.90

Market cap

€451m

Net cash (€m) at June 2016 including finance leases

30.1

Shares in issue

92.0m

Free float

60.5%

Code

BVB

Primary exchange

Frankfurt

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

15.5

21.3

24.0

Rel (local)

16.5

12.9

10.6

52-week high/low

€4.59

€3.59

Business description

The group operates Borussia Dortmund, a leading German football club, runners-up in the 2015/16 Bundesliga and competing in this season’s UEFA Champions League (quarter-finalists in 2015/16 UEFA Europa League).

Next events

Edison London roadshow

6 October 2016

Q1 results

11 November 2016

AGM

21 November 2016

Analysts

Richard Finch

+44 (0)20 3077 5700

Paul Hickman

+44 (0)20 3681 2501

Borussia Dortmund is a client of Edison Investment Research Limited

A broadly positive start to the season both at home and in the Champions League confirms coach Tuchel’s successful record of squad development after high-profile departures. Renewed strength in depth and typically attractive style of play complement escalating scope for transfer gains. Despite inflationary wage pressure we still look for a doubling this year in pre-transfer EBITDA (our key metric), albeit from a reduced base (FY16 pre-transfer EBITDA was slightly below our expectations). A new lucrative deal on Bundesliga media rights drives FY18 growth prospects, assuming continued Champions League. Finances remain impressively disciplined.

Year end

Revenue* (€m)

EBITDA*
(€m)

PBT**
(€m)

EPS**
(€)

DPS
(€)

EV/EBITDA
(x)

06/15

263.6

48.0***

44.2***

0.43***

0.05

8.8

06/16

281.3

15.3

73.8

0.68

0.06

27.5

06/17e

307.0

30.0

51.0

0.47

0.06

13.6

06/18e

340.0

42.0

66.0****

0.61****

0.06

9.1

Note: *Before player transfer income. **PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. ***Including insurance claim benefit (our estimate €12m). ****Assuming €37m player transfer profit.

Q4: Success at a price

Dortmund ended the year well with Q4 pre-transfer revenue up 13% on the back of Europa League involvement, Champions League qualification and a return to the German Cup Final. However, also as expected, costs were again an issue, hence pre-transfer EBITDA reduced to €1m from €4m in Q415, as adjusted for a ‘negative outcome’ insurance claim. This is attributed to pressures associated with key player retention and variable expenses, eg player bonuses, advertising agency commissions and match operations. For the full year, advertising was especially buoyant (+12%) thanks to on-field success and a growing presence in Asia.

Profit growth to resume

Our forecasts, detailed on page 2, are notable for strong revenue generation from renewed Champions League access and a new Bundesliga broadcasting deal from FY18. On the other hand, labour costs are also set to continue to rise sharply; after +19% last year we now assume +14% in the current period, which explains our pre-transfer EBITDA downgrade from €35m, and +10% next year. Our forecast FY18 PBT and EPS reflect transfer gains, which are notional but reasonable, given the company’s record and significant surplus of market value to net player assets (c €165m if the June 2016 carrying value of €65m plus estimated subsequent spend of c €110m is set against the current www.transfermarkt.de valuation of €340m).

Valuation: Possible breakout

The market’s positive appreciation of Dortmund rebuilding and a possible step-change in profit is welcome, albeit early days. Even after recent share price buoyancy, an EV/EBITDA of 9.1x FY18e does not fully recognise the long-term potential of powerful brand development, valuable media rights and strong cash flow, backed by season ticket sales and hidden reserves from player investment.

Exhibit 1: Revenue and profit analysis

Year end June (€m)

2015

H116

Q316

Q416

FY16

FY17e

FY18e

Home matches

Bundesliga

17

8

5

4

17

17

17

Champions League

4

-

-

-

-

4**

4**.

Europa League

-

3+2qual.

2

1

6+2qual.

-

-

DFB Cup

1

1

-

-

1

2***

2***

Super Cup

1

-

-

-

-

1

1

Away matches:

Champions League

4

-

-

-

-

4**

4**

Europa League

-

3+2qual.

2

1

6+2qual.

-

-

DFB Cup

4+Final

2

1

1+Final

4+Final

2***

2***

Revenue

Match operations:

Bundesliga

26.8

12.9e

7.9e

6.4e

27.1

27.1

27.5

Champions League

7.4

-

-

-

-

7.9

8.0

Europa League

-

7.5e

4.0e

1.9e

13.4

-

-

DFB Cup / Super Cup

4.4

1.3e

0.5e

1.9e

3.7

3.5

3.5

Other

1.3

1.8e

0.3e

0.4e

2.5

3.0

3.0

Total

39.9

23.5

12.7

10.6

46.8

41.5

42.0

TV marketing:

Bundesliga

43.6

30.0

14.9

15.9

60.8

65.0

90.0

Champions League

32.5

3.2

-

-

3.2

40.0

43.0

Europa League

-

8.3

2.3

3.4

14.0

-

-

DFB Cup / Super Cup

6.0

0.7

0.7

3.0

4.4

4.0

4.0

Total

82.1

42.2

17.9

22.5

82.6

109.0

137.0

Advertising

75.7

40.0

20.0

24.6

84.6

87.0

89.5

Merchandising

39.3

24.4

7.4

8.0

39.8

41.0

42.5

Catering/other

26.6

13.3

6.2

8.0

27.5

28.5

29.0

Total

263.6

143.5

64.2

73.6

281.3

307.0

340.0

Other operating income

17.0*

1.9

0.5

1.1

3.5

4.0

4.0

Labour costs

(117.9)

(66.1)

(35.0)

(39.1)

(140.2)

(160.0)

(176.0)

Share of revenue

45%

46%

54%

53%

50%

52%

52%

Material costs

(20.7)

(14.5)

(5.2)

(6.0)

(25.7)

(27.0)

(28.0)

Other operating costs

(94.0)

(53.0)

(22.0)

(28.6)

(103.6)

(94.0)

(98.0)

EBITDA before transfers

48.0

11.8

2.5

1.0

15.3

30.0

42.0

Margin

18%

8%

4%

1%

5%

10%

12%

Profit on disposal of players

7.6

13.7

(0.3)

58.0

71.4

33.0****

37.0*****

Transfer income

12.4

24.7

8.2

62.1

95.0

42.0

50.0

Less: Carrying value/selling costs

(4.8)

(11.0)

(8.5)

(4.1)

(23.6)

(9.0)

(13.0)

Source: Edison Investment Research. Note: *Including €12m insurance claim benefit (our estimate). **Assuming exit in Round of 16. ***Assuming exit in quarter-final. ****Predominantly on disposal of Mkhitaryan. *****Notional (assumed average of transfer profit in FY15, FY16 and FY17e).


Exhibit 2: Financial summary

€'000s

2015

2016

2017e

2018e

June

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

263,600

281,600

307,000

340,000

EBITDA

 

 

48,000*

15,300

30,000

42,000

Player transfers

 

 

7,600

71,400

34,000

37,000

Operating Profit (before amort. and except.)

46,100

75,900

53,000

68,000

Intangible Amortisation

(32,900)

(32,000)

(50,000)

(53,000)

Exceptionals

0

(7,500)***

0

0

Other

0

0

0

0

Operating Profit

13,200

36,400

3,000

15,000

Net Interest

(1,900)

(2,100)

(2,000)

(2,000)

Other financial items

(5,300)**

0

0

0

Profit Before Tax (norm)

 

 

44,200

73,800

51,000

66,000

Profit Before Tax (FRS 3)

 

 

6,000

34,300

1,000

13,000

Tax

(500)

(4,900)

(200)

(1,500)

Profit After Tax (norm)

43,700

68,900

50,800

64,500

Profit After Tax (FRS 3)

5,500

29,400

800

11,500

Average Number of Shares Outstanding (m)

87.3

92.0

92.0

92.0

EPS - normalised (c)

 

 

42.7

68.2

47.1

61.0

EPS - (IFRS) (c)

 

 

6.0

32.0

0.9

12.5

Dividend per share (c)

5.0

6.0

6.0

6.0

EBITDA Margin (%)

18.2

5.4

9.8

12.4

Operating Margin (before GW and except.) (%)

17.5

27.0

17.3

20.0

BALANCE SHEET

Fixed Assets

 

 

289,500

302,800

311,000

245,000

Intangible Assets

96,300

65,300

120,000

55,000

Tangible Assets

189,500

188,400

187,000

186,000

Investments

3,700

49,100

4,000

4,000

Current Assets

 

 

97,000

121,800

111,500

182,500

Stocks

9,400

10,200

11,000

12,000

Debtors

29,700

51,100

32,000

76,000

Cash

53,700

51,700

64,500

90,500

Other

4,200

8,800

4,000

4,000

Current Liabilities

 

 

(61,600)

(78,800)

(78,500)

(79,500)

Creditors

(59,100)

(76,200)

(76,000)

(77,000)

Short term borrowings

0

0

0

0

Finance leases

(2,500)

(2,600)

(2,500)

(2,500)

Long Term Liabilities

 

 

(38,800)

(36,200)

(38,000)

(36,000)

Long term borrowings

0

0

0

0

Finance leases

(21,600)

(19,000)

(19,000)

(19,000)

Other long term liabilities

(17,200)

(17,200)

(19,000)

(17,000)

Net Assets

 

 

286,100

309,600

306,000

312,000

CASH FLOW

Operating Cash Flow

 

 

24,400

44,400

30,000

42,000

Net Interest

(7,200)

(1,400)

(400)

(300)

Tax

(200)

(300)

(2,000)

(200)

Capex

(10,400)

(9,400)

(10,200)

(10,000)

Acquisitions/disposals

(61,700)

(20,500)****

1,000*****

0

Financing

135,700

(7,700)

0

0

Dividends

(6,100)

(4,600)

(5,500)

(5,500)

Net Cash Flow

74,500

500

12,900

26,000

Opening net debt/(cash)

 

 

44,900

(29,600)

(30,100)

(43,000)

Finance leases initiated

0

0

0

0

Other

0

0

0

0

Closing net debt/(cash)

 

 

(29,600)

(30,100)

(43,000)

(69,000)

Source: Company accounts/Edison Investment Research Note: *Including estimated c €12m insurance claim benefit. **Early repayment of financial liabilities. ***Player asset write-down. ****Including acquisitions of Castro, Bürki and Weigl and disposals of Kampl, Immobile and Hofmann. *****including acquisitions of Schürrle, Götze, Dembélé, Rode, Guerreiro, Bartra and Mor and disposals of Mkhitaryan, Hummels and Gündogan NB valuations estimated by www.transfermarkt.de.

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Borussia Dortmund and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

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New York +1 646 653 7026

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US

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Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Borussia Dortmund and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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