Description
BORUSSIA DORTMUND GmbH & Co. (BVB.GR) – Long
Last Sale: €5.79
Market Cap: €533mm ($644mm)
TEV: €595b (€62mm Net Debt)
30 Day Avg Daily Volume: ~294k shares/day (~€1.7mm)
Investment Horizon: ~12-24 months
Summary
Borussia Dortmund (BVB) is a German football club that plays in the country’s first division. The stock remains materially off its 2019/20 highs given the ongoing impact of COVID-related lockdowns in Europe. While football match attendance remains nonexistent across the continent, BVB has the balance sheet to withstand the prolonged shutdown, and will benefit directly (match revenues) and indirectly (improved financial health for clubs who would like to enter into a player transfer transaction) when attendance is allowed to return to more normal levels (which the Bundesliga is hoping for the 2021/22 season). Furthermore, opportunities in media and merchandising will help propel profitability in years to come. As conditions normalize later this year or next, we expect shares of BVB to revert back to their pre-pandemic levels, more than 50% higher than the stocks last sale.
Business Overview
BVB is a German professional sports club based in Dortmund, North Rhine-Westphalia. It is best known for its men's professional football team, which plays in the Bundesliga, the top tier of the German football league system. Founded in 1909 by eighteen football players from Dortmund, the football team is part of a large membership-based sports club with more than 145,000 members, making BVB the second largest sports club by membership in Germany. The club has active departments in other sports, namely in women's handball. Since 1974, Dortmund have played their home games at Signal Iduna Park (Westfalenstadion); the stadium is the largest in Germany, and, per mgmt, Dortmund has the highest average attendance of any association football club in the world.
BVB generates sales from five primary sources (excluding player transfer fees):
- Match Operations (12% 2018/19 sales) – Signal Iduna Park has a total capacity (seated and standing) of 81k. BVB's ticket price policy is based on stable ticket prices (only moderate price increases to compensate for inflation). The aim is to maintain the unique DNA of BVB and the notorious atmosphere in the stadium by retaining a large proportion of regular spectators.
- Advertising (26%) - Despite the COVID-19 pandemic that began in mid-March, advertising revenues in fiscal year 2019/2020 increased compared to the prior year.
- TV Marketing (45%) - TV revenues consist of income from national TV marketing by the DFL and international TV marketing by the UEFA.
- Merchandising (8%)
- Conferences, Catering, Misc. (8%)
BVB’s key shareholders:
- 10% Evonik Industries
- 9% Bernd Geske
- 6% Ballspielverein Borussia
- 5% SIGNAL IDUNA
- 5% Ralph Dommermuth Beteiligungen
- 5% PUMA SE
Investment Thesis
The core points of our long BVB thesis include:
- Quality business model
o Winning franchise – Since 1956, BVB has won eight German Championships (1956, 1957, 1963, 1995, 1996, 2002, 2011, 2012); In the past eight seasons, BVB has reached at least the last sixteen of the UEFA Champions League six times.
o Player monetizations - BVB employs an attractive strategy to find young players with potential, offers them a platform to perform, and then typically sells them to larger clubs for a profit.
§ BVB has trained >100 former junior players who have made the leap into professional football.
§ BVB has a very young squad (avg age 24.5 years old) and will continue to have one in the future.
§ Past investments in young players such as Nuri Sahin, Mario Götze, Ousmane Dembélé (received fixed transfer fee of E105mm) and Christian Pulisic (received fixed transfer fee of E64mm).
§ Current investments in young players such as Youssoufa Moukoko (15), Jude Bellingham (17), Giovanni Reyna (17), Erling Haaland (20), Jadon Sancho (20) or Dan-Axel Zagadou (21)
- Strong credit
o BVB employs relatively low leverage – net debt to 2019 EBITDA ~0.5x. This is much more conservative than many of their comps (MANU, JUVE.IM, etc), and should help BVB emerge as a relative winner from the current crisis.
- Stable and competent management team that did a great job of turning around BVB’s financial position.
o CEO Hans-Joachum Watzke, has served in this role since 2006
o CFO Thomas Tress, has served in this role since 2006
- New opportunities
o Strategies to increase advertising and digital presence will help, and we expect further increases in revenues from both German and European TV deals.
- Attractive valuation
o BVB trades at
o Market value of player assets at 9/1/20 was E580mm per transfermarkt.de – this equates to almost 100% of BVB’s enterprise value at the last sale. While this is a bit of a theoretical exercise (as not all players will be monetized), we think it speaks to the huge potential for transfer fees in years to come.
- Short/Medium term catalysts
o COVID lockdowns are rolled back in Europe and fan attendance levels normalize.
o Player transfers – Erling Haaland and Jadon Sancho, both of whom have estimated market values ~E100mm, are prime transfer candidates.
o Re-instituting the regular dividend
Key Risks
- COVID lockdowns continue indefinitely
- Poor performance on the field
- Player transfers are pushed out
I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.
Catalyst
- COVID lockdowns are rolled back in Europe and fan attendance levels normalize
- Player transfers – Erling Haaland and Jadon Sancho, both of whom have estimated market values ~E100mm, are prime transfer candidates.
- Re-instituting the regular dividend