18th December 2013
Love them or hate them, Manchester United are big. Big team. Big news. Big business. If they are not top of the Premier League, then its worldwide army of followers, commentators and investors in the Nasdaq quoted vehicle start to ask why. Tony Levene looks at what its recent run of poor form has done for investor sentiment.
This season, they have had plenty of questions as the team slumped to an unprecedented ninth place in the twenty team division. And all of those focused on just one man. Can new manager David Moyes capture the magic of Alex Ferguson’s 25 year reign? After a run of poor results, the answers ranged from a definitive no to a more generous “give him time to settle in as the previous act is tough to follow.”
But last weekend, the team won away at Aston Villa decisively – running out three-nil victors. So did that silence the gainsayers or at least cheer the more positive?
It worked well with the media pundits – and even more so with United’s Red Army of fans – the team is reputed to be the best followed on earth.
But on the stock market, it was nothing of the sort. On the first trading day after that comprehensive win, the shares fell 3.62% to $15.50 – they were trading at $17 a week earlier. While that is still marginally ahead of their IPO price in mid 2012, the shares have trailed the all important S&P 500 index by so much as to put the stock into the well below average third division.
So does the market worry, ahead of this weekend’s home fixture against lowly rated West Ham, that the Villa victory was a flash in the pan?
Nothing of the sort. For what happens on-field (win, draw or lose) and the stock market price may have decoupled. Investors cannot buy the shares as a positive proxy for a bet on the results.
Over the past week, the stock has been spooked by talk of “short selling” – effectively funds taking a bet that United’s shares will go down. According to data from Markit, which measures short selling as a percentage of a company’s equity, some five per cent of the stock has been shorted. And prominent among the non-fans is UK-based Odey Asset Management, run by colourful market operator Crispin Odey who has a short position in around 1% of the company, while New York hedge fund Tremblant Capital also has a 0.81% short in the club.
But that’s not the only reason for the stock’s lacklustre performance. Analysts have cut their target prices, sending further shivers into the market. Whether this is chicken (they are reacting to the poor start to the 2013-14 campaign) or egg (they are setting off in a new direction) is never clear.
Last month, according to website http://www.analystratings.net US broker Raymond James cut its price target from $19.00 to $17.50 in a research report sent to investors. This followed analysts at Nomura reiterating a neutral rating (for which read mildly negative) on the stock in mid November while earlier in the season analysts at Zacks downgraded the shares from a neutral rating to an underperform rating (that means sell!) in a research note to investors. Zacks now has a $16.70 price target on the stock. One equities research analyst has rated the stock with a sell rating, one has given a hold rating and two have issued a buy rating to the stock. The company has a consensus rating of Hold and a consensus target price of $18.30.
But the short sellers are up against some powerful long term fans. Prominent among these are George Soros, who has a 5.3% holding, and GLG, part of giant hedge fund Man Group, with a 2.2% stake.
They are looking beyond the present run of results. For starters, it does not seem as though United’s fan army will be deserting it any time soon. Followers have an amazing ability to live through years of misery – for some, moaning about the team is the reason they support it. The occasional good year or bright result is seen as a bonus in the gloom.
This goodwill cannot be measured although a far east fan who has spent a fortune on United merchandise will not easily switch allegiance. United had record receipts this year.
More, United has a £350m shirt sponsorship deal with General Motors, the largest ever in the world, which is spread over seven seasons, offering security. And that’s before the £20m a year tie-up with Aon for training ground naming rights plus the insurer having its logo visible during press conferences. There is no sign of empty seats at Old Trafford, either.
But football has a record of spending all it earns on player remuneration. And plenty more on top of that – on of the reasons for the large debts many clubs have. The Manchester United IPO in 2012 was mainly to reduce borrowings.
Investors must have faith in a rising share price. For the stock sold in 2012 has precious few voting rights and a low chance of ever paying a dividend.
So it is a line up between Soros and other big holders versus Odey, a number of other short sellers and some far from bullish analysts.
Who will win? Just as in the real beautiful game, there could be some surprises to come.