Spanish eyes
Continued Champions League progress in the guise of a quarter-final draw against Real Madrid promises further valuable incremental income (broadcasting and sponsor bonuses) and merchandising potential. The consequent increase of €4m in our pre-transfer EBITDA forecast points to a record outturn at that level in the current year, suggesting the Wembley-led comparative is not an impossible act to follow.
Win increases forecasts
Borussia Dortmund GmbH & Co KGaA's (BVB.F) success in the Champions League Round of 16 against Zenit St Petersburg brings an assured financial return in terms of a €3.9m UEFA broadcasting fee for reaching the quarter-finals on 2 and 8 April as well as bonuses from company sponsors and higher match day income. We are therefore raising our current year revenue and EBITDA forecasts by €8m and €4m respectively. Victory over Real Madrid would secure, from UEFA alone, a €4.9m fee for participation in the semi-finals and further income from its broadcast market pool. Our forecasts envisage that a 17% reduction in H1 EBITDA will be recouped in the second half as Q413 was severely depressed by exceptional costs associated with the Champions League Final, eg player bonuses, advertising agency commissions, administration and match operations.
Safety first
While Dortmund fared well against Real Madrid in last season’s Champions League, with victories at both the group stage and in the semi-finals, our forecasts assume elimination at this point, given the teams’ contrasting form of late. However, we still look for the club to finish in the top three in the Bundesliga, which brings automatic qualification for next season’s Champions League. With just eight matches to go, Dortmund is seven points ahead of fourth place but faces a possibly tougher finish than immediate rivals, Schalke and Bayer Leverkusen.
Valuation: Long-term appeal
Recent share price strength reflects not only continued Champions League success but also growing acceptance of the sustainability of the business model and scope for value creation. In terms of pre-transfer EV/EBITDA, a rating of 6.6x on possibly conservative FY14 forecasts fits the long-term potential of strong brand development, valuable media rights and positive cash flow, backed by substantial season ticket sales and hidden reserves from player investment.
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