Morningstar hails Manchester United's key strengths such as its brand image, loyal fan base and its ability to ink mega-bucks sponsorship deals - earlier this week it secured a shirt sponsorship deal with General Motors that could scoop the club $559m between 2014 and 2021. A merchandising contract with Nike is up for renewal in 2015. Furthermore, there is the possibility of expansion of broadcasting revenues should there be more changes to the way English Premier League teams can negotiate the terms of their broadcasting partnerships. Morningstar is not ruling out Manchester United defying its analysis and admits the upside scenario could see the shares rise above $25.
But despite all of these positives, Morningstar's analysts remain doubtful that Manchester United's shares are worth anything more than $10 each. There are too many imponderables to apply such a high valuation, according to the researchers. At the mid-point of the IPO range, Manchester United woud sit on a 2013 p/e ratio of 110.3 times, falling to 67.3 times in 2014. Obviously, those numbers will drop now the float price has been cut to $14, but even so, it's a big premium to other brand image stories such as Disney.
It's far from certain whether the club can maintain recent success on the field, especially in the face of competition from other clubs owned by money-no-object billionaires. Keeping up with such rivals will be increasingly expensive and that will weigh on profits. There are also concerns about the debts which the club still carries - indeed, half of the proceeds of the IPO go to the owning Glazer family rather than to creditors. The debt to capital ratio will still be around 50 per cent after the IPO.
Finally, in the face of resurgent competition on the field, will Manchester United be able to maintain the pace of acquisition of new fans in emerging markets?
