B ANKHAUS LAMPE RESEARCH 1 HOLD Price target 1.40 € Borussia Dortmund GmbH & Co. KGaA (HOLD - Price target 1.05 €) FINANCIAL LOSS, BUT SPORTING BOOM 8.10.10 9:04 SPORTING SUCCESS IN THE BUNDESLIGA AND IN EUROPE Borussia Dortmund is currently enjoying a sporting boom. In the Current Price (ETR): 1.38 € Bundesliga, the team is ranked 2nd after seven games. The club has a record of Bloomberg: BVB six victories and only one defeat so far. Although the season is still at an early Branche: Entertainment stage, an upward trend is already visible. After finishing the 2007/08 season at Performance of share price: rank 13 and narrowly failing to qualify for the Europa League in 2008/09 (rank 52 Week High 1.38 € 6), the team finished last season at rank 5, and with the win over Qarabag Ag- 52 Week Low 0.90 € dam (Azerbaijan) it reached the group stage of the Europa League. With one Compared to Prime All Share victory and one defeat, Borussia Dortmund is currently ranked 3rd in a group of YTD 30.5% four and is still in a promising position to make it to the forthcoming knockout 1 month 25.7% stages. 3 months 26.4% 12 months 38.3% The success in sports continues to be accompanied by a moderate in- vestment policy. The financial possibilities are limited by inherited financial bur- 175.0% Prime All Share dens, but there is nevertheless no need to sell the club’s top players. Over the Borussia Dortmund GmbH & 150.0% Co KGaA last few years, Borussia Dortmund has gradually built a promising young team 125.0% and created player assets. Some examples are Lucas Barrios, Neven Subotic and 100.0% Nuri Sahin, whose market values offer significant revenue potentials. It can be assumed that the company will go on trying to combine success in sports with 75.0% 06.10.2009 06.01.2010 06.04.2010 06.07.2010 06.10.2010 economic rationality. This can mean that these players may be sold if an attrac- tive offer is received. Share data: EV (in m €; 2010): 111.3 2009/10 FINANCIAL YEAR CLOSED WITH A LOSS Market cap (in m €): 84.8 The past financial year was closed with a loss of EUR 2.8 m (previous No. of shares (in m): 61.4 year: EUR -2.9 m). Thus, the company failed to reach its target of achieving a Free-float: 82.7% balanced result. This is due to the following reasons: Trading vol. Ø (in m €) 0.111 Although the effects of the financial crisis were limited, they did Shareholder structure: have a negative impact on sales in sponsoring Bernd Geske 10.1% Transfer revenues were limited; the transfer of Nelson Valdez (just BV. Borussia 09 e.V. Dortmund 7.2% under EUR 4 m) was made only shortly after the end of the finan- cial year Moreover, a look at the revenue structure (in the following at the Group Next event: level) shows that the development was relatively stable despite the economic Q1 12.11.10 distortions. Ticketing increased by EUR 1.2 m (+5.5%) to EUR 23.4 m, which is attributable to rising income from Bundesliga matches. Change in model in %: Sales EBIT EPS 08/09 0,0% 0,0% 0,0% 09/10 8.6% n/a n/a 10/11 5.1% n/a n/a in m € 2007/08 2008/09 2009/10 2010/11e 2011/12e Sales 105.3 107.9 100.9 112.2 109.9 EBIT 11.3 -0.1 -1.0 7.9 4.0 EBIT margin 10.7% -0.1% -1.0% 7.0% 3.7% Net debt 13.8 25.3 31.6 26.5 26.2 FCF 56.3 -9.0 8.7 4.9 0.3 Sebastian Hein, CIIA, CEFA EPS (in €) 0.09 -0.05 -0.05 0.09 0.04 Fon: (+49) 211 4952-606 DPS (in €) 0.00 0.00 0.00 0.00 0.00 [email protected] Dividend yield 0.0% 0.0% 0.0% 0.0% 0.0% EV/Sales 1.0 1.0 0.9 1.0 1.0 EV/EBIT 9.6 -1,053.1 -94.0 14.2 27.5 Please note the disclaimer & PER 18.0 - - - - - - 15.7 33.9 disclosures at the end of this report. Source: Company information, Bankhaus Lampe Research B ANKHAUS LAMPE RESEARCH 2 AT THE TOP OF THE AT- With an average number of 76,441 spectators and around 50,000 season TENDANCE TABLE tickets sold, Borussia Dortmund was once again number one in the league. On the other hand, revenues from national and international cup competitions decreased. Sponsoring (-1% to EUR 38.9 m) and TV marketing (-6% to EUR 21.1 m) were also down year-on-year. In TV marketing, this development is primarily due to fact that the Supercup game did not take place in 2009/10 and that the team failed to qualify for international competition (EUR -1.1 m). Transfers, in particu- lar Alexander Frei, generated revenues of EUR 4.9 m (previous year: EUR 11.5 m). In the Catering/Other segment, the development of revenues was almost identical (-1% to EUR 12.6 m). POSITIVE RESULT IS PRO- The management assumes that a positive annual result will be achieved JECTED in the next two financial years. The uncertainty remaining inherent in the business model is the dependence of the financial results on sporting success. In the current financial year, by reaching the Europa League, Borussia Dortmund will generate revenues which, together with the transfer revenues gen- erated to date (primarily Nelson Valdez for almost EUR 4 m), should lead to sig- nificant sales growth. In combination with the cost controlling measures imple- mented, substantial earnings effects should be observed. WE ARE RAISING OUR ES- We have significantly raised our estimates for the next two financial TIMATES years and assume that Borussia Dortmund will reach the Europa League (group phase) again in 2011/12. Participation in the Champions League would offer sig- nificant upside potential; the same applies to transfer revenues. But of course, there is also downside potential if the team fails to qualify for the Europa League. HOLD THE STOCK REVENUES ARE DRIVEN BY EUROPA LEAGUE Although Borussia Dortmund posted an earnings loss for 2009/10, the club is currently significantly above plan on the sporting side. Revenues are driven by the Europa League, so that, on balance, positive results should be achievable in the next two financial years, as projected by the company. Based on our DCF model, we arrive at a price target of EUR 1.40 and a “Hold” recommendation. B ANKHAUS LAMPE RESEARCH 3 KEY FIGURES Borussia Dortmund GmbH & Co. KGaA - Profit and loss account in m € 2007/082008/09 2009/10 2010/11e 2011/12e Sales 105.3 100.0% 107.9 100.0% 100.9 100.0% 112.2 100.0% 109.9 100.0% yoy 9.3% 2.5% -6.5% 11.2% -2.0% Own work capitalised 8.7 8.3% 2.3 2.1% 2.4 2.4% 2.6 2.3% 2.7 2.5% yoy 0.1% -73.6% 6.1% 6.3% 3.8% Total sales 114.1 108.3% 110.3 102.1% 103.3 102.4% 114.8 102.3% 112.6 102.5% yoy 8.5% -3.3% -6.3% 11.0% -1.8% Material expenses 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% yoy 0.0% 0.0% 0.0% 0.0% 0.0% Personnel expenses -42.5 -40.3% -46.9 -43.4% -44.6 -44.2% -45.5 -40.6% -47.8 -43.5% yoy 24.0% 10.3% -4.9% 2.1% 5.1% Unusual or infrequent items 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% yoy 0.0% 0.0% 0.0% 0.0% 0.0% Other operating result -51.6 -49.0% -52.9 -49.0% -49.4 -49.0% -51.1 -45.6% -50.5 -45.9% yoy 19.7% 2.6% -6.6% 3.4% -1.2% EBITDA 20.0 19.0% 10.5 9.7% 9.3 9.2% 18.2 16.2% 14.3 13.0% yoy -28.0% -47.6% -10.9% 94.6% -21.0% Depreciation 8.6 8.2% 10.6 9.8% 10.3 10.2% 10.3 9.2% 10.3 9.4% yoy 25.6% 22.3% -2.2% -0.4% 0.0% EBITA 11.3 10.7% -0.1 -0.1% -1.0 -1.0% 7.9 7.0% 4.0 3.7% yoy -45.7% - - - >100% - - - -48.5% Amortisation of goodwill 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% yoy 0.0% 0.0% 0.0% 0.0% 0.0% Amortisation of intangible assets 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% yoy 0.0% 0.0% 0.0% 0.0% 0.0% EBIT 11.3 10.7% -0.1 -0.1% -1.0 -1.0% 7.9 7.0% 4.0 3.7% yoy -45.7% - - - >100% - - - -48.5% Financial result -5.5 -5.2% -2.8 -2.6% -1.6 -1.6% -1.5 -1.3% -1.1 -1.0% yoy -10.5% -49.1% -41.1% -8.8% -26.7% Income on ordinary activities 5.8 5.5% -2.9 -2.7% -2.7 -2.6% 6.4 5.7% 2.9 2.7% yoy -60.3% - - - -8.2% - - - -53.7% Extraordinary income/loss 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% yoy 0.0% 0.0% 0.0% 0.0% 0.0% EBT 5.8 5.5% -2.9 -2.7% -2.7 -2.6% 6.4 5.7% 2.9 2.7% yoy -60.3% - - - -8.2% - - - -53.7% Taxes -0.6 -0.5% 0.0 0.0% -0.1 -0.1% -1.0 -0.8% -0.4 -0.4% yoy >100% -96.6% >100% >100% -53.7% Tax rate 9.5% -0.6% -4.9% 15.0% 15.0% Net income from cont.