A positive annual report and continued on-field success reinforce confidence in our current-year forecasts and a possible step-change in returns in FY17, assuming Champions League qualification. Indeed, forecasts we are now introducing for next year suggest a near-doubling in pre-transfer EBITDA (our key metric) and strong cash generation for player investment (we estimate €74m net cash at June 2017). An EV/EBITDA (pretransfer) of under 5x FY17e appears to ignore the long-term potential of such powerful brand development and valuable media rights.
Assuming progress to the Europa League knock-out stage (on course after two group matches), we expect pre-transfer EBITDA to lag only slightly behind FY15 (before the estimated c €12m benefit of a ‘negative outcome’ insurance claim), which is impressive, given the absence of the Champions League. Profit should be bolstered by a lucrative new deal on the international marketing of Bundesliga media rights (revenues to more than double) and by a rise in Europa League fees. Excluding transfers, our forecasts are broadly in line with recent annual report guidance. Although surprising, given robust finances, the halving of the FY15 dividend reflects management caution and focus on sporting achievement.
Our forecasts, as detailed on page 2, assume qualification for next year’s Champions League (also on track after a quarter of the Bundesliga season) and an advance to its knock-out stage, as in the three years to FY15. As well as clearly boosting advertising and merchandising, the Champions League may thus be expected to generate for Dortmund c €30m more TV marketing revenue than the Europa League in the current period. While mindful of cost pressures associated with success, we look for just a 7% rise in labour expenses as the squad is arguably already run on Champions League lines.
Dortmund’s season has begun as well as could have been envisaged, hence justifiable optimism about renewed access to Champions League riches, yet the FY17e EV/EBITDA rating is not extravagant. In addition, the scope for transfer gains remains high. Albeit notional, the surplus of market value to net player assets is c €190m if the reported June 2015 carrying value of €96m is set against sports website www.transfermarkt.de’s current valuation of €287m.