FE Alpha Manager Nick Train has started a new holding in the £1.2bn Finsbury Growth & Income trust after buying a stake in Manchester United from the Glazer family.
The manager runs a concentrated portfolio of around 20 stocks and has a very long-term investment philosophy that means new holdings are rarely added or existing ones sold out of. The addition of Manchester United is the first new purchase for the investment trust in two years.
In an update to investors, Train revealed that he paid just below $17 per share for his stake in the football club; this is 12 per cent off the high seen in the stock some three years ago. He added that the fact he was able to buy from the Glazer family itself – which owns the club – could suggest they see no immediate reason for the stock to climb significantly higher.
Train said that he “certainly” doesn’t feel as though he has paid a high price for a “fashionable, hot stock”, conceding that Manchester United shares (MANU) “have been stuck in a bit of a rut”. However, he believes that the stock is in line for significant gains.
Performance of trust vs sector and index over 10yrs
Source: FE Analytics
The reason behind this is the manager’s belief that technology is revolutionising the media industry as firms such as Amazon and Netflix invest billions of dollars a year commissioning new entertainment ‘content’. Given that some US investors view UK football clubs as “entertainment products”, he expects tech companies to start channelling money towards them.
“It will not be long now before an internet giant bids against an incumbent football rights holder. The ramifications for traditional media companies will be massive, but through the turmoil we expect the value of strongly-franchised football clubs to rise,” the FE Alpha Manager said.
“Earlier this month the Houston Rockets, an NBA team, was sold for $2.2bn. This is a new record for a basketball franchise. The seller, Leslie Alexander, had bought it for $85m in 1993. It is worth recalling MANU had a stock market value of below £20m in 1993, so like the Rockets it too has been radically revalued. One reason is the latest deal to televise basketball, which has just trebled revenues for the NBA. The Rockets generate c$250m of revenues, meaning the franchise has been sold at c9.0x annual sales.
“If MANU is as valuable as the Rockets – and we think in truth its global reach makes it far more valuable – then it would command a value of well over $5bn; more than double the current market capitalisation. This is the scale of the opportunity we see.”
Finsbury Growth & Income has ongoing charges of 0.74 per cent, is trading on a 0.8 per cent premium to net asset value and yields 1.8 per cent, according to figures from the Association of Investment Companies.