Borussia Dortmund: A Hidden Gem in European Football and Investment

Borussia Dortmund GmbH, the German football club known for its iconic yellow and black jerseys, has been making waves both on and off the pitch. With a rich history of success and a strong financial track record, the club has emerged as an attractive investment opportunity in the European football landscape. Let's delve into the factors that make Borussia Dortmund a compelling investment case.

Financial Performance and Valuation

Borussia Dortmund's financial performance has been resilient despite the challenges posed by the COVID-19 pandemic. In Q221, the club reported a 3% year-on-year decline in revenue to €120.9m, but this was a significant improvement from the 50% decline in Q121. EBITDA for Q221 was an impressive 23% higher than the prior year, at €36.6m, driven by a c 13% reduction in cash operating costs. Lower taxes led to a threefold improvement in profit after tax to c €9.5m (Source: Q221 trading update).

The club's asset-based valuation indicates a significant upside of 144% from the current share price of €5.14 to €12.55. This valuation is supported by the unrealised value in the playing squad and the brand, each of which has an estimated valuation greater than the current share price. The EV/sales multiple for FY21e of 1.7x is broadly in line with the long-run average since FY05 despite the depressed revenues and higher financial gearing, indicating potential for strong share price performance on a recovery in revenue and profitability post-COVID-19 (Source: Q221 trading update).

Revenue Streams and Profitability

Borussia Dortmund's sporting success has a significant impact on its revenue streams and profitability. The club's consistent presence in the Champions League and strong domestic performances have increased demand for media rights, sponsorships, and merchandise. In the 2022/23 season, the first season without COVID-19 restrictions, the club reported a strong recovery in financial results to pre-COVID-19 levels (Source: Q224 results and outlook).

The club's relatively consistent on-the-pitch success has enabled it to generate long-term revenue growth and increase the relative predictability of its revenue streams. The start of new formats for European football competitions in FY25 is expected to significantly enhance financial distributions to clubs, further contributing to the company's potential upside (Source: Investment summary).

Asset-Based Valuation and Peer Comparison

Borussia Dortmund's asset-based valuation suggests a significant upside of 144% from the current share price, supported by the unrealised value in the playing squad and brand. The company's relatively consistent sporting success, coupled with management's financial prudence, has driven a revenue CAGR of 10% since FY05 and a positive profit before tax in most financial years. The start of new formats for European football competitions in FY25 is expected to significantly enhance financial distributions to clubs, further contributing to the company's potential upside compared to its peers (Source: Investment summary).

In conclusion, Borussia Dortmund's financial performance, revenue streams, and asset-based valuation make it an attractive investment opportunity in the European football landscape. The club's consistent sporting success, financial prudence, and expected enhancements in financial distributions contribute to its potential upside compared to its peers. As the club continues to build on its strong track record, investors should consider adding Borussia Dortmund to their portfolios.