Club Brugge officially kicked off its exhibition plans on Wednesday. Since then, Club and the accompanying bankers have been polling about the interest of major investors. These conversations are crucial for determining the subscription price.
“And, what do you think of my discounted cash flow calculation for Club Brugge?”, An analyst from an accompanying investment bank asks a fund manager on Thursday. The fund manager: “Well, rather optimistic, isn’t it?”
With the discounted cash flow method, an analyst makes an estimate of the future cash flows. In a mature, listed sector, you can also compare price-earnings ratios (the price of the share divided by the earnings per share). In the football sector, this turns out to be impossible. If you let the Bloomberg news service calculate a price-win ratio of all European clubs, you will find that they are quoted on average at 1,000 times the profit, because there is little or no profit.
What is the impact on the share price of Club Brugge if the youth product Charles De Ketelaere breaks its leg?
The discounted cash flow models must convince the fund managers to subscribe to the IPO. These analyst reports are reserved for major investors for legal reasons. Small investors should turn to the prospectus, which the supervisors hope that the regulator FSMA will approve within two weeks, so that the IPO can take place before Easter. It is highly questionable whether potential investors (and supporters) read that gray peat of several hundred pages.
Predicting the future is extra difficult for a football club, according to the valuations of the investment banks involved. A fund manager: ‘I have a report in which Club’s valuation ranges from 200 to 400 million euros. And I have another report in which the valuation goes from 400 to 600 million. ‘
De Tijd wrote on Wednesday that the supervisors are aiming for at least 400 million euros. Whether that will succeed depends on the discussions with the major investors. JPMorgan, Credit Suisse and Berenberg are responsible for this. Are institutions willing to buy shares in a football team? Are these types of shares not only reserved for ‘family, friends and fools’? A supervisor: ‘No, that time is over. More and more institutions see a lucrative business in football. An institutional investor like Invesco owns more than 3 percent of Ajax. ‘ Although it must be said that Invesco once had more than 5 percent.
Club Brugge sells itself as a ‘normal profitable company’ rather than a football club.
In an IPO, 10 percent or more of the shares is often reserved for the retail investor. Due to its popular character – Club Brugge is the most famous newcomer on the Brussels stock exchange since Bpost in 2013 – it is whispered in the corridors that the retail sector can reach 20 percent. Belfius vouches for this. In any case, most of the money comes from large investors. The shareholder group around chairman Bart Verhaeghe sells shares for an estimated 150 to 200 million euros.
Club Brugge can turn out the most recent financial year with a gross operating profit (EBITDA) of 61 million euros and an operating profit (EBIT) of 35 million on a turnover of 119 million (according to the international accounting standard), an excerpt from a report that a fund manager tells us delivered (see illustration). Profit margins of 51 percent (EBITDA / turnover) and 29 percent (EBIT / turnover) are unique among listed clubs. Club Brugge therefore sells itself more as a ‘normal profitable company’ than as a football club. The profit comes mainly from the participation in the Champions League and from transfer winnings.
Returning or not?
The question is how recurring those profits are. Has Club, through its sophisticated scouting and data analysis, found a ‘golden formula’ that guarantees that in the future you will also buy a player at a bargain price and sell it at a multiple? Will the historical rivals Anderlecht and Standard remain in sack and ashes, ensuring Clubs regular participation in the lucrative Champions League? These are uncertainties that investors have to factor in.
One thing is certain: Club Brugge will be a high-risk share. How soon are full stages possible again postcorona? What if youth product Charles De Ketelaere breaks his leg? What if the discount on the social security contributions disappears? What if the new stadium is not built in 2023-2024? What if the transfer system is overhauled? (A football connoisseur called it legal human trafficking this week). And what if the BeNeliga remains an eternal dream?
All these risks will be neatly described in the ‘risk factors’ section of the prospectus. We recommend that any interested investor read them anyway.
Impact of football results
“It will not be good for the shares,” joked football analyst Imke Courtois after Club’s chaotic cup defeat on Thursday. Indeed, potential investors should consider the impact of football results. When Ajax received a late exclusion and then a goal against Bergamo in December – and thundered out of the Champions League -, the share fell by almost 10 percent in the following days. When Dortmund lost two league games in a row in January, an unusual case, the share also lost 10 percent. The most striking example is AS Roma, which halved in August last year after the elimination in the Europa League. Club Brugge also dropped out of the Europa League last week.