companies

Rangers Football Club

EPIC: RFC
Mid Price: 32.50p
Spread: 30p – 35p
Total no. of shares: 108,791,499
Market Cap: £35.36 million
12 month range: 32.5p – 52.5p
Website: www.rangers.co.uk
Sector: Leisure entertainment & hotels

Background

Rangers Football Club is the owner of the Scottish Premier League football club of the same name. Founded in 1873 the Glasgow based team has a pre-eminent place in Scottish football, having won more than 100 major trophies in its history, including 53 league championships and the European Cup Winners Cup in 1972. The club was also a founder participant in the UEFA Champions League, in which the club has participated eight times.

On the pitch

Rangers were crowned as champions of the Scottish Premier League for the 2009/10 season. They convincingly retained the championship with three games to spare by winning 1-0 against Hibernian at Easter Road on 25th April. In addition to this, the team also did the ‘double’ beating St. Mirrin 1-0 in the final of the Scottish league cup. The club is around 11/10 with the bookies to win the league again this year. Importantly, in finishing top of the league last season, the club has qualified for the group stages of the Champions League and will be able to enjoy the associated riches. In last season’s Champions League, Rangers were knocked out in the group stage after failing to win a single game.

Financials & Recent Trading

Although the effect of the current economic climate had an impact on ticketing and hospitality sales, as well as the income from SPL media rights, turnover for the six months to 31st December 2009 jumped by 87% to £37.8 million on the back of the proceeds of Champions League participation. Due to the timing of the involvement in the Champions League, revenue is weighted in favour of the first six months of the financial year.

Net operating expenses decreased by 15% to £21 million in the half, reflecting reduced salary levels and efficiencies introduced throughout the club. This resulted in an increase in operating profit by 14% to £22 million. Accounting for a £5.5 million decrease in gains from the sale of player registrations, pre-tax profit was at £13.8 million, up from a £4.1 million loss in the first half of calendar 2008.

No update on the company’s financial position was given in the interim results. The most recent balance sheet we have is for 30th June 2010, when the club held net debt of £31.1 million. Cash holdings slumped, to £594,000 from £4.59 million. Rangers stressed that it had a £15 million revolving credit facility in place until 31st December 2010, headroom on existing facilities of £8.9 million and a £15 million swap arrangement with the Bank of Scotland in place until March 2011.

During the year, the club confirmed the appointment of Tennant’s Lager as official club and shirt sponsor from 2010/11, after a seven-year involvement with Carling. More recently Rangers announced that manager Walter Smith, along with his coaching staff, have agreed to stay at the club. In addition, efforts to find a capital injection for the club are ongoing; such an arrangement would mean that the club would no longer be reliant on its facility with Lloyds TSB.

Ownership

Rangers has for some time been subject to takeover rumours and was put into “bid situation” status by PLUS last October. Murray International, which owns 90% of the company, has recently confirmed that it has received interest over its controlling stake from a number of parties but no deal has been agreed on. Murray said that it, “considers that the interests of stakeholders are presently best served by providing the football management team and board of directors with an opportunity to implement its business plan which is supported by Lloyds Banking Group.” As such, Murray is no longer actively marketing its controlling stake in the club for sale.

Other shareholders include chairman Alastair Johnson, vice chairman John McClelland, and director J. Wilson, all of which hold a combined share in the company of around 1%.

Investment recommendation

The Rangers takeover saga has been dragging on for around ten months now, the firm having been put into “bid situation” status by PLUS last October. At that time the firm was heavily in debt and fears were growing for its future. But since then the company has done well, posting a move back into the black in the six months to December 2009 and enjoying success on the pitch. However, it is concerning that the latest debt position announced to the market is now over a year old.

At a current mid-price of 32.5p Rangers is capitalised at £35.36 million. With the finances still a mess and the firm having recently confirmed that it is being investigated by HM Revenue and Customs – with reports claiming the club faces a £24 million tax bill, plus legal costs, over offshore payments to players – the shares remain unattractive. For property millionaires and die hard fans only.