Market Roundup: Investing in the beautiful game ⚽ China hands out olive branch 🌿
1. Investing in the beautiful game
EU want to stay in? UK. It’s not all a bed of roses
Gone are the days when top football (or soccer!) clubs’ main source of income came from filling up seats and selling beer and pies on a Saturday afternoon. Broadcasters have been flooding the game with cash as more established operators do battle with deep-pocketed streaming service entrants. After all, high-quality sports content is a valuable asset.
Shares in some publicly quoted European teams have managed to beat the wider stock market over the past years as revenues at top clubs have surged thanks to broadcast revenues. In the UK alone, the total value of TV viewing rights (2019-2022) for Premier League games is £4.55bn. In its last earnings update, Manchester United reported a near 40% increase in broadcasting revenues for the three-month period and 26% for the six-month period. So should we all be investing in football clubs?
The four largest listed football clubs are England’s Manchester United, Scotland’s Celtic, Germany’s Borussia Dortmund and Italy’s Juventus – whose stock price sky rocketed after beating Atletico Madrid earlier this week with Ronaldo’s hat-trick. All of these are worth investigation from a company fundamentals perspective. But add to this their powerful branding, social standing and the value of the multi-million players, and you get something quite different from other ordinary business. Bear in mind, however, that football is fickle as the overall performance, or winning streak, of the team can change on a penalty decision. So it’s an uncertain industry.
That said, football is the world’s most popular sport and the big clubs are likely to profit from growing demand in years to come. The question is, can an investor make a call without being overcome by emotional and partisan feelings?
2. China hands out olive branch
China has approved a foreign investment law that may serve as an olive branch in trade talks with the US. The new ruling aims to address the West’s long-running grumblings about market entry and better intellectual property protection. The decision comes as the US and China get ever-closer to resolving the year-long trade war that has pounded businesses with painful tariffs.
The law will eliminate the need for foreign companies to transfer proprietary technology to Chinese joint-venture partners and protect against “illegal government interference”. China will also amend its intellectual property law and “introduce a punitive damages mechanism to ensure that all infringements will be seriously dealt with”, said Chinese Premier Li Keqiang.
While punters in the West have acknowledged this positive move, some are saying it’s not going far enough. Some believe the language is too vague and still allows China’s local governments to expropriate investments that “harm public interest”. Also there is no form of appeal.
The devil is in the detail and we’ll see what happens in the real world once it comes into effect in January 2020.
Today we are watching…
1. Volkswagen (#vw)
Often seen as a weather-vein of the German economy, Volkswagen’s on-going saga just gets worse. Not only does it reflects Germany’s declining state as a major export economy, but the SEC accuses it of “perpetrating a massive fraud” and repeatedly lying to investors about its diesel emissions – Dieselgate. The SEC is suing the company and its former CEO. Don’t expect any price recovery for a while!
2. Restaurant Group (#restgrp)
With discount retailer, Dollar General, announcing its Q4 earnings before market opening, the consensus earnings estimate is $1.98 (+27.7% year on year). Consensus revenue estimate is $6.61B (+7.8% year on year). In the past couple of years, Dollar General has beaten earnings estimates 63% of the time and revenue estimates 50% of the time. Your call!