The American website, CNBC, has a provocative story in its pages. It might not realise it is provocative, but it will, I suspect, generate some conflicting opinions.
It quotes Gervais Williams, a fund manager at Miton Group PLC, speaking highly of the value of the shares.
He is quoted as saying:-
“Because of the precipitous fall a lot of the debts have gone away. The business has got £20 million ($33 million) cash on the balance sheet. It owns its own ground which is worth about £70 million, the training ground worth another £10 million. They’ve really got great revenue coming in from the season ticket sales which will happen over summer. So, the actual business is capitalized at only £45 million.
“What’s been remarkable is how loyal that fan base has remained and that’s going to really drive its valuation going forward.
“There’s lots to go for in this business, I agree generally not a good place to make money in football clubs but this business, given it doesn’t have any debt, given it’s such a low cost outfit at the moment, it’s going to make plenty of profit.”
A contrary view for the future comes from Henry Dixon, co-founder and fund manager at Matterley Asset Management. Commenting on the wage bill for the players and the potential of a significant rise in costs, he is quoted as saying:-
“Is that enough to sustain a club in the Scottish premier league, is it enough to win? That’s going to be the tug of war between, if you like, economics and emotion and the heart.”
I think the words of the piece too are of interest, bearing in mind that this is written for a non-West of Scotland audience.
A sports team languishing in the fourth division of the national leagues may not sound like the best investment, but Gervais Williams, the fund manager at Miton Group told CNBC that one soccer club in Scotland is set for great things after a turbulent few years.
Glasgow Rangers FC fell from grace last summer as the club went into liquidation after being placed into administration and being docked ten points. The team lost to its arch rivals at the end of the season and was then placed into the bottom tier of the league following rejection from members of the Scottish Premier League.
Rangers may not be challenging for the same league title it has won 54 times previously. But a lack of debt, loyal fans, a new wave of young players and some astute clothing deals nevertheless mean this club is one of the best investments in soccer, according to Williams.
Results posted at the start of March showed a loss of 7 million pounds for the last seven months of 2012, with revenue of 9.5 million pounds and operating expenses at 16.6 million pounds. A new retail arrangement with retailer Sports Direct has been announced, alongside kit deals with manufacturer Puma and sponsor Blackthorn Cider.
I bow to experts like Mr Williams when it comes to assessing a company’s worth. However one factor which he does not address in his quotes and Mr Dixon does, is the financial v emotional aspects of football.
Generally, despite all of the money which has gone into football clubs over the last few years, football teams do not make profits. Only in the English Premier League do we see profits being made, as a result of the huge TV deals, but, even at Manchester United, the profit effectively disappears paying interest on the money used to buy the football team.
Scottish football teams do not make profits.
No fans sing about having the best gross profit in the land.
No supporters boast (until Rangers fans this season) about how much money their team has in the bank.
Few fans chant about having the biggest market capitalisation.
Ask the supporters of Celtic, or Rangers, or Aberdeen, or Hamilton, or Annan Athletic which of the following options they would choose:-
1 Profits made by the football club are distributed to the shareholders as dividends
2 Profits made by the football club are re-invested into the team in signing better, or at least more expensive, players to the point that there is no longer a profit.
I suspect that answer 1 would get short shrift.
As I have repeatedly said, if Mr Green pulls it off, he deserves to be Businessman of the Year. As Mr Williams identifies, the fixed assets are worth £80 million and there is £20 million cash in the business. Market capitalisation is under £50 million. He does not even mention that Mr Green’s company acquired the fixed assets and the team and the history and the goodwill and the intellectual property for a measly £5.5 million!
Are we already seeing though the straws in the wind for the future?
After all, Rangers have succeeded in its initial missions under Mr Green.
There is still a football team playing in blue at Ibrox.
It is about to clinch victory on SFL3.
It has managed to get large crowds at most of its games.
But the fans are unhappy with the way in which victory is being achieved, and with the players, and with the manager.
To get through the next season successfully, whatever division the team is in, there will be demands from fans for better players to be signed. Would the supporters accept sticking with the same squad which, after all, is far ahead in SFL3, and which beat an SPL team earlier in the season, to ensure that profits exists for distribution to the shareholders?
It would be interesting if any of the Rangers fans who read this (I know there are some of you out there) wanted to offer their views on that.
From the perspective too of other teams how do you feel about profit v investment?
The final point to add about the story comes from the “Disclosure” at the foot of the CNBC piece.
Miton Group have holdings in the above stock.
I am NOT suggesting that an experienced financial man like Mr Williams is doing anything wrong by publicly stating that a company in which his company holds shares is a great investment. After all, as he will be paid by his results, surely it is better to spread this excellent news, rather than keep it to himself?
It is also a sign of his confidence that his company is a shareholder. Far better that, surely, than recommending a share which his company does not hold.
Ironically this piece came on to my radar just after posting Ecojon’s earlier today.
I am happy to offer a range of opinions on these important matters.
As per the disclaimer at the side of the page, nothing above should be taken as being financial advice and no liability is accepted for any investment decisions anyone makes as a result of reading my blog. (Thanks Alasdair!)
Posted by Paul McConville