Nick Train buys ‘entertainment product’ Manchester United

Train Nick Lindsell Train 2014Nick Train has added the first new holding in two years to the Finsbury Growth and Income trust, buying sought after shares in Manchester United directly from owners the Glazer family.

Despite the market capitalisation of the football club sitting at $2.7bn, only approximately $700m is available to retail investors.

“We accessed a block of the quoted shares from the Glazer family itself, where some family members wanted to sell for estate planning purposes,” Train says.

“This was helpful, because otherwise the shares are tightly held. The fact that some family members were willing to sell suggests that they knew of no imminent reason for the shares to go up a lot. Indeed you might argue that the sale implies that they don’t regard the shares today as particularly undervalued.”

However, Train argues that he has not “paid top dollar for a fashionable, hot stock” either. Having floated in August 2012 at $14 and reaching a high of $19.4 in 2014, Manchester United shares have averaged $16.3 per share with Train paying just below $17.

“It is worth noting that over those years of moribund share price MANU’s financial position has meaningfully improved…adjusted EBITDA has more than doubled, while net debt of around £366m is down and interest costs, at around 13 per cent of EBITDA, have halved, as a result of favourable refinancings.

“The company has also begun paying a dividend. Nonetheless, we can sympathise with those family members who were prepared to sell. We don’t see any short-term reason for the shares to pop and we accept they do not look undervalued, certainly on conventional measures of investment value. Yet we are delighted to have made the investment. We expect, over time, this to be a very rewarding commitment of your capital.”

Train adds that US investors see British football clubs as entertainment products, as asserted by author James Montague, which “the network will never cancel”.

“It will not be long now before an internet giant bids against an incumbent football rights holder. The ramifications for traditional media companies will be massive, but through the turmoil we expect the value of strongly-franchised football clubs to rise,” Train says.

The manager likens Manchester United to NBA team Houston Rockets that was recently sold for $2.2bn.

“This is a new record for a basketball franchise. The seller, Leslie Alexander, had bought it for $85m in 1993. It is worth recalling MANU had a stock market value of below £20m in 1993, so like the Rockets it too has been radically revalued…If MANU is as valuable as the Rockets – and we think in truth its global reach makes it far more valuable – then it would command a value of well over $5bn; more than double the current market capitalisation. This is the scale of the opportunity we see.”

The £1.2bn Finsbury Growth and Income trust has a concentrated portfolio of around 30 holdings with a low turnover. Over one year the trust has returned 18.8 per cent compared to the 15.4 per cent average of the UK Equity Income sector.