Borussia Dortmund’s Q120 results exhibited typical volatility due to the key summer transfer window. Excluding the volatile transfer revenue, there was good growth with other revenue up c 15%. We maintain our forecasts but note there is a key Champions League game in less than two weeks and results in the Bundesliga must improve to ensure qualification for the competition next season. The shares continue to look well supported by its player assets and the FY20e EV/EBITDA multiple of 5.8x.
The first quarter was a busy period for transfer activity as the coaching staff (second full season) re-shaped the team with five players sold and six players added (including option exercises). Total revenue increased by c 33% y-o-y to €175.2m, compared to a relatively subdued quarter for transfer activity in Q119 with just two players sold. Excluding transfers (+70% y-o-y), total revenue increased by c 15%, with good growth from other sources, excluding match operations (c 5% of revenue). Match operations revenue declined by c 20% y-o-y, mainly due to fewer pre-season friendlies. Successful exploitation of the brand came through more partnership relationships and a documentary of the club on Amazon. There were encouraging signs of an improvement in Merchandising, with the key Christmas period coming. Operating income was affected by player sales: an operating loss of €757k in Q120 versus a profit of €6.4m in Q119.
As it is still the early stages of the season, we leave our forecasts unchanged. Our key assumptions are that the team progresses through to the Champions League Round of 16 of and finishes in the top four of the Bundesliga. The team is placed second from four in a tight Champions League group, with a tough away game to FC Barcelona on 27 November, before a home game against Slavia Prague. In the Bundesliga, the results have been more mixed: the current league position is sixth, albeit in a relatively compact league, against a leading position this time last year.
The shares have underperformed due to a less successful domestic start than the 2018/19 season. The latest squad valuation per www.transfermarkt.de is c €576m (down from c €610m in our most recent prior note) compared to the balance sheet value of player registrations and assets held for sale of €269m, which highlights the hidden value in a club with a proven track record of successful value realisation. The EV/EBITDA multiples for FY20e and FY21e are 5.8x and 5.6x, respectively.