The following comment was posted on a thread yesterday by Mícheál. As he managed to say what I was going to say about market capitalisation and values in a far more elegant and far shorter way, I thought I would post it as a post, for anyone who might have missed it. I think he was writing in response to Clarkeng who wanted to make clear, over a large number of comments (and I am happy for him to participate so enthusiastically) that RIFC PLC was “worth” more than Celtic as a result of the share prices.
He also says kind words about me, but has a warning, of which I am very conscious, of how the blog could lose its value. (And by value I mean an entirely non-financial value – I am not looking to sell the blog off – unless of course some tycoon wants to buy it!)
Take it away Mícheál.
I don’t know why some people are bringing Celtic into the discussion again.
There is no one obsessed with Rangers because they trade at a higher price right now. But for the sake of an argument I will explain the difference in market capitalisation a wee bit. That’s easily explained by trading volume. There is no supply to meet the demand for Celtic plc shares therefore the price stays the same. Statistical outlier is the 25th January this year but that’s just people who want to cash in their investment.
The difference in the trading volume comes from mainly 2 reasons.
1. Rangers International is a new company. Hence it produces interest among the jobbers at the AIM
2. Though the structure seems similar with Celtic plc having 35.57 per cent and Rangers International 36.89 per cent of the shares widely spread, Dermot Desmond holds 36.43 per cent with other directors and single investors holding around 21 per cent. There are only 5 shareholders holding more than 3 per cent of the shares in Celtic. This as I said before constrains the possibility of trading in Celtic plc shares significantly.
Rangers International on the other hand has (as per prospectus) 12 shareholders holding more than 3 per cent of the shares but no one more than 9 per cent, 7 of them institutional investors. As you can see there are more people in for the money in Rangers International (RI) as in Celtic plc (Celtic).
Does the market capitalisation mean RI is the bigger company?
Does it mean its value is higher?
No, as well.
Market capitalisation is a starting point for valuing a company but NOT its value. I can’t do a proper analysis right now, first of all because I lack time and motivation to do so and secondly there are no Cash flows and accounts etc. available for RI not even on Thomson Reuters or Bloomberg (of course because they do not exist right now) but my guess is that Celtic’s value exceeds that of RI by a third to one half and because of IFRS I do not count the value of the first teams of both clubs of both companies.
So what does the market capitalisation tells us: Celtic is undervalued. Nothing more nothing less.
Enough of Celtic now.
Coming to the other topics: It is not the fact that Rangers are trading at a loss right now that causes this “shock” as it was pointed out that many came to that conclusion after reading the accounts in the prospectus. (As I said then I say it again it is never a good sign for a company to have an operating loss).
It is the fact that Mr Green told the Rangers Media but apparently not the investors and after all the fuss he made about Rangers being only second to Man U and the millions of possible customers, etc. and he was hailed as the new Fergus McCann but now it looks like he is a new David Murray (with less money).
About the MSM. I think (but as an outsider I can’t say it for sure) it is not only Rangers related that the MSM degenerated to being the voice of the press office of the company. Everywhere in the world the quality of articles in newspapers is dropping. Quality newspapers like the NY Times, the Times, Le Monde, Die Zeit, etc. become tabloids. Journalists don’t know how to do research or they don’t get the time to do so. Right now you get the latest news in the internet and proper research is done by the people who are blogging about things they have an interest in. This is a sad trend.
I guess that’s all what I wanted to say. I will stay at the sideline and look how everything unfolds. I will still read the blog because I love Paul’s writing style but won’t comment anymore because more than often the comments here read more like Celtic/Rangers trash talk and this as well is a sad trend.
Posted by Mícheál