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I Finally Do More Than Kick the Tires on Manchester United

The stock of the legendary football club appears undervalued amid the pandemic.
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There's no doubt I've been on a bit of a sports kick lately. As I wrote in Tuesday's column, that includes The Liberty Braves Group (BATRA) , which provides exposure to the Atlanta Braves at what I believe is a discount. Last month, I took positions in RedBall Acquisition Corp (RBAC) RBACU, a new special purpose acquisition company (SPAC) that has at its co-chairman Oakland A's executive and former first-round draft pick Billy Beane of "Moneyball" fame.

The RedBall play is not due to current valuations, as it is just a pile of cash at this point looking for something to buy. Rather, the purchase is based on the potential of what RedBall might do, which includes buying pro sports teams. Last month it was reported that Boston Red Sox owner John Henry was in discussions with RedBall to take the Sox public. No doubt, this is a departure for a value investor.

The latest sports-related position is in Manchester United (MANU) , owner of the football club that bears its name, among other things. MANU was taken public in 2012 at $14 a share, topped out around $26 in 2018 and has done the proverbial roundtrip, now trading below the initial public offering (IPO) price.

I've done the dance with this company for years, but this is my first position. I've seen Manchester United present at the annual Baron Funds Conference and walked away impressed, but never was able to pull the trigger previously. Incidentally, Baron Funds is a huge believer in MANU, to the extent that it owns just over 30% of the company. Institutional ownership is huge, by the way; Lindsell Train Limited owns more than 29% of MANU, and in total it is nearly 89% owned by institutions.

Due to the pandemic, revenue is way down in 2020. For the third quarter, it was down 38% year over year. MANU shares are down 32.5 % year to date. With a market cap of $2.2 billion, plus cash of $67 million and debt of $678 million as of last June 30, the current enterprise value of the company is about $2.8 billion. In June, Forbes listed the current value of the Manchester United Team at $2.69 billion, the fifth most valuable club on the list. In 2018, MANU was listed as the most valuable club at $3.69 billion, so there is room for improvement.

I viewed the sub-$14 price point as attractive and finally took the plunge. I view this as a long-term hold, a foot in the door with a valuable franchise, and will not hesitate to increase the position if the opportunity presents itself. MANU does pay a small dividend and currently yields 1.34%.

I believe that I am now out of potential teams to buy.

At the time of publication, Heller was long BATRA, RBAC, RBACU and MANU.