Manchester United second quarter results: What's behind the share price slump? A loss of faith in the Glazer model or Louis van Gaal's team?

 
Joe Hall
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Manchester United Executives Ring Opening Bell At New York Stock Exchange
Woodward (r) will field calls from United investors on Thursday (Source: Getty)

Manchester United were recently tipped by Deloitte to reclaim their position as the world's richest football club, yet investors do not appear to be reciprocating the faith in football's premier commercial juggernaut.

Over $800m (£345m) has been wiped off the club's market value and its share price has slumped by 22.5 per cent since first quarter results were announced last November.

A close price of $13.8 per share on Tuesday put the Premier League club's stock at its lowest value since December 2012.

Executive vice-chairman Ed Woodward is likely to field some difficult questions from investors after the club's half-year earnings are released on Thursday.

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What's behind the share price slump?

Currently six points behind fourth place Manchester City and 12 points behind league leaders Leicester City, United face an uphill battle to qualify for next season's Champions League - that may be enough to have brought its share price down according to Evan Danckwerth, an analyst at Private Company Financial Intelligence.

"Going through the fundamentals, they look strong in terms of how much money they’re bringing in," he told City A.M. "But the team is doing poorly, they’ve spent an incredible amount of money on transfers and they’re out of the Champions League early which is going to affect things like match-day revenue for home games and the broadcast rights as well.

"People will look at those fundamentals and think ‘For how much money Ed Woodward has spent, for what you’re trying to do with Louis van Gaal, how’s the team going to continue to outpace itself from last year?'"

However, chief executive of the Manchester United Supporters' Trust (Must) Duncan Drasdo suggested the slump could be down to more long term issues.

"Given the degree of decline and the extended period over which it has occurred I believe this most likely reflects a perception about longer term uncertainty over profitability rather than simply the short term results on the pitch," he said.

"It's debatable whether any football club can sustainably compete at the elite level and simultaneously generate a profit when it is up against other clubs where the owners - often fan owned - reinvest profits into the club as we see at rivals Real Madrid, Barcelona, Bayern Munich and Manchester City.

"It may be that the market - and indeed the majority owner Glazer family - are only gradually coming to this realisation."

What are the financial implications of not qualifying for the Champions League next season?

Failure to do so would see the club miss out on roughly £30m in TV and prize money from next season's competition and the chance to significantly boost match-day revenues.

It could also see the value of the club's record-breaking £75m kit deal with Adidas reduced, with some suggestions of an agreement between the companies that the amount owed by the German sportswear manufacturer will be slashed if United spend two seasons outside Europe's elite.

Furthermore, increased pessimism about the team's abilities could dampen investors' previous expectations that the club would be in line for a top-four finish worth over £140m when a new Premier League TV deal starts next season.


Van Gaal's position as Manchester United manager has come under intense scrutiny (Source: Getty)

What can investors expect from the club's half-year earnings?

All eyes will be on whether the club reneges on the prediction made in November that it would become the first English football club to record more than £500m in revenue. At the time United were fourth in the table, three points ahead of Tottenham in fifth and just two points off the league summit.

Read more: Man United retail income boosted 186pc by Adidas deal

Woodward may also be pulled up on the implications of United's early exit form the Champions League after warning in his last earnings call of the risks to English clubs of losing a qualifying spot.

The good news is that the former J.P. Morgan investment banker's ability to secure lucrative sponsorship partnerships for the club shows no sign of diminishing. Already in 2016 United have announced tie-ups with Chinese TV station Sina Sports, Columbia Sportswear and 20th Century Fox.

What do analysts expect?

Analysts polled by Thomson Reuters currently expect the club's full-year revenue figure to be at the lower end of its own expectations with a mean average of £501.5m forecast - down from estimates of £525m a year ago.

Danckwerth said on Wednesday that an increase in earnings could ease the share price slump: "I think earnings are going to be up when they release tomorrow, so I do think you’ll see a slight pop in share price then and I think it’ll be back to around $16 or $17 per share within the next year."

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