How much is Hibs worth?

[jacomo]

I thought I would try and work out how much Hibernian Football Club is worth. This might help in deciding whether or not the share issue proposed by the club is a good deal or not.

I’ve set out my thinking below, so feel free to argue with my methodology.

1. At the risk of being obvious, Hibs is worth what someone is willing to pay. Or, more accurately, despite this not being a seller’s market for Scottish football clubs, the price at which our owner is willing to sell. Douglas Low claims his consortium offered £3.5m but got knocked back pretty sharpish. BuyHibs claimed that they couldn’t establish a price for the club.

2. Value to supporters. Hibs supporters have an emotional connection to the club, often going back over generations. You could say this connection with history and sense of community and place is priceless. You can also say that, for most of us, Hibs is irreplaceable – we can replace a cherished car, or sell a much-loved home, but we can’t choose another football club.

3. Assets versus liabilities. Short-term creditors and debtors aside, the club has had its property assets (Easter Road and The Training Centre) valued at £25m, and its long term debt is £5m. This leaves a net value of £20m. But as you can’t sell the assets to pay off the debts, this figure is misleading and not a true value of the club.

4. As a business. Hibs had a turnover last year of £8m, but made a loss of £800k. It’s predicted that things might be about the same or even worse this year. Hibs posted a profit of £300k in 2012/13 but a loss of £900k for 2011/12. This was on the back of a few years where Petrie could point to ‘rock solid’ results but, when losses come, they tend to be hefty. It is fair to say that the club’s finances are both volatile and fairly unpredictable, and – as far as I am aware – there is no plan to pay dividends on shares. There is no queue of investors desperate to sink money into Scottish football, so no obvious profit to be made by selling shares in a few years’ time. Measuring the worth of the business as a financial investment is very difficult and pretty pointless.

5. Comparators. The most obvious comparison is with our neighbours. Ann Budge bought Hearts for £2.5m. Foundation of Hearts has agreed an initial payment of £1m as working capital, plus further payments totalling £2.8m to Ann Budge, in return for a 75% stake. This implies a valuation for Hearts at £3.73m.

However, Budge’s bid was for a distressed company in administration, so you’d expect the valuation to be a bit less. Also, there is considerable uncertainty over the long term viability of Tynecastle stadium and their training ground is leased, not owned. These factors all suggest Hearts are worth less than Hibs. Hearts are in the same division as us and don’t have greater opportunities for growth, so no reason to build in a premium there.

Aberdeen: Their recent debt restructuring looks extraordinarily generous. Their debts of £14.49m have been wiped out, with the 'bulk' covered by Willie and Elaine Donald, in return for a total of 20% of the club (but no seat on the board). They did say they wanted to 'give something back' to the community, so this seems a largely altruistic move on their part. The rest of the debt seems to have been forgiven by Stewart Milne.

6. The share issues a 51% stake in the club for £2.5m – so a valuation of just under £5m. As BuyHibs correctly said, however, you need to add the debt of £5m to that, because that’s a liability that must be paid by whoever owns the club. So that implies a total valuation of around £10m – that seems very high compared to Hearts.

However, it is vital to remember that money raised through the share issue goes into the club… so if the full 51% is taken up, Hibernian Football Club would have a £5m debt and an extra £2.5m cash in the bank. If the remaining 49% is offered to supporters on the same basis at a future date, Hibs would have generated £5m in cash – wiping out the debt.

So… Hibs is worth £5m. Does that seem fair, based on the above? I think it does. In fact, compared to Hearts, with its crumbling infrastructure, it looks like a bargain.

[erin go bragh]

Priceless


Ggtth

[Onceinawhile]

An audited value of 25p per share.

[Weststandwanab]

Good post and try Jacomoseven a subject I did for a dissertation at University and I could write a book on this subject.

But you hit the nail on the head in the first sentence, it is worth what someone will pay for it if the owners have to sell.

STF probably does not have to sell.

[Caversham Green]

In pure cash terms it's now easy enough to assess what value the owners put on the club.

Ignoring the odd 1% the new issue of shares will equal the number already in issue if fully taken up. They're being offered for £2.5m in total, so the value put on the club as it stands is £2.5m.

BuyHibs are guilty of double counting by adding the debt on to their value of the club when it's already an integral part of the club. David Low is, as always, full of malicious bulls hit. He's the one that thinks ground sharing between Hibs and Hearts is a no-brainer but forgot to mention that when he was trying to buy the club.

[Peevemor]

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In pure cash terms it's now easy enough to assess what value the owners put on the club.

Ignoring the odd 1% the new issue of shares will equal the number already in issue if fully taken up. They're being offered for £2.5m in total, so the value put on the club as it stands is £2.5m.

BuyHibs are guilty of double counting by adding the debt on to their value of the club when it's already an integral part of the club. David Low is, as always, full of malicious bulls hit. He's the one that thinks ground sharing between Hibs and Hearts is a no-brainer but forgot to mention that when he was trying to buy the club.

It depends if you're looking at it from an accountant's or a lay person's point of view.

If half the shares are to cosy £2.5m, then surely to have all the shares and wholly own the club (ie. no debt) would mean a value of £10m?

[Caversham Green]

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It depends if you're looking at it from an accountant's or a lay person's point of view.

If half the shares are to cosy £2.5m, then surely to have all the shares and wholly own the club (ie. no debt) would mean a value of £10m?

No, an equal amount of the shares currently in issue will cosy () £2.5m. The sale of the new shares will bring in another £2.5m making the expanded club worth £5m.

The shares represent the value of the club in total - assets less liabilities. The debt is a liability that will be paid by the club, not the owners, so it is irrelevant to ownership but reduces the value of the club as an entity.

[jacomo]

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No, an equal amount of the shares currently in issue will cosy () £2.5m. The sale of the new shares will bring in another £2.5m making the expanded club worth £5m.

The shares represent the value of the club in total - assets less liabilities. The debt is a liability that will be paid by the club, not the owners, so it is irrelevant to ownership but reduces the value of the club as an entity.

And a £2.5m cash pile (raised through selling 51% of shares) would count as an asset would it not?

Completely agree about David Low, by the way.

[Peevemor]

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No, an equal amount of the shares currently in issue will cosy () £2.5m. The sale of the new shares will bring in another £2.5m making the expanded club worth £5m.

The shares represent the value of the club in total - assets less liabilities. The debt is a liability that will be paid by the club, not the owners, so it is irrelevant to ownership but reduces the value of the club as an entity.

In theory, if there was no debt, could the shares not double in value?

[Caversham Green]

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And a £2.5m cash pile (raised through selling 51% of shares) would count as an asset would it not?

Completely agree about David Low, by the way.

Yes it would - the £2.5m would come in at the same time as the share capital would double, so the club would be worth £2.5m more as a result of a share issue equivalent to its existing share capital.

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In theory, if there was no debt, could the shares not double in value?

If the debt was written off, the value of the total share capital would increase by the amount of the debt. If it was paid off cash would leave the club, thereby reducing the asset value by the same amount as the reduction in debt increased it - the effect on share capital value would be nil.

[Islington Hibs]

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I thought I would try and work out how much Hibernian Football Club is worth. This might help in deciding whether or not the share issue proposed by the club is a good deal or not.

I’ve set out my thinking below, so feel free to argue with my methodology.

1. At the risk of being obvious, Hibs is worth what someone is willing to pay. Or, more accurately, despite this not being a seller’s market for Scottish football clubs, the price at which our owner is willing to sell. Douglas Low claims his consortium offered £3.5m but got knocked back pretty sharpish. BuyHibs claimed that they couldn’t establish a price for the club.

2. Value to supporters. Hibs supporters have an emotional connection to the club, often going back over generations. You could say this connection with history and sense of community and place is priceless. You can also say that, for most of us, Hibs is irreplaceable – we can replace a cherished car, or sell a much-loved home, but we can’t choose another football club.

3. Assets versus liabilities. Short-term creditors and debtors aside, the club has had its property assets (Easter Road and The Training Centre) valued at £25m, and its long term debt is £5m. This leaves a net value of £20m. But as you can’t sell the assets to pay off the debts, this figure is misleading and not a true value of the club.

4. As a business. Hibs had a turnover last year of £8m, but made a loss of £800k. It’s predicted that things might be about the same or even worse this year. Hibs posted a profit of £300k in 2012/13 but a loss of £900k for 2011/12. This was on the back of a few years where Petrie could point to ‘rock solid’ results but, when losses come, they tend to be hefty. It is fair to say that the club’s finances are both volatile and fairly unpredictable, and – as far as I am aware – there is no plan to pay dividends on shares. There is no queue of investors desperate to sink money into Scottish football, so no obvious profit to be made by selling shares in a few years’ time. Measuring the worth of the business as a financial investment is very difficult and pretty pointless.

5. Comparators. The most obvious comparison is with our neighbours. Ann Budge bought Hearts for £2.5m. Foundation of Hearts has agreed an initial payment of £1m as working capital, plus further payments totalling £2.8m to Ann Budge, in return for a 75% stake. This implies a valuation for Hearts at £3.73m.

However, Budge’s bid was for a distressed company in administration, so you’d expect the valuation to be a bit less. Also, there is considerable uncertainty over the long term viability of Tynecastle stadium and their training ground is leased, not owned. These factors all suggest Hearts are worth less than Hibs. Hearts are in the same division as us and don’t have greater opportunities for growth, so no reason to build in a premium there.

Aberdeen: Their recent debt restructuring looks extraordinarily generous. Their debts of £14.49m have been wiped out, with the 'bulk' covered by Willie and Elaine Donald, in return for a total of 20% of the club (but no seat on the board). They did say they wanted to 'give something back' to the community, so this seems a largely altruistic move on their part. The rest of the debt seems to have been forgiven by Stewart Milne.

6. The share issues a 51% stake in the club for £2.5m – so a valuation of just under £5m. As BuyHibs correctly said, however, you need to add the debt of £5m to that, because that’s a liability that must be paid by whoever owns the club. So that implies a total valuation of around £10m – that seems very high compared to Hearts.

However, it is vital to remember that money raised through the share issue goes into the club… so if the full 51% is taken up, Hibernian Football Club would have a £5m debt and an extra £2.5m cash in the bank. If the remaining 49% is offered to supporters on the same basis at a future date, Hibs would have generated £5m in cash – wiping out the debt.

So… Hibs is worth £5m. Does that seem fair, based on the above? I think it does. In fact, compared to Hearts, with its crumbling infrastructure, it looks like a bargain.

I think that is a really good holistic analysis. Frankly it is worth different amounts to different people.

As a fire sale the value of the land possibly for housing- but lets not go there- as an going business not a vast amount as the profit record/ potential isn't exactly sparkling. I am not sure if the club has ever paid a dividend. I think the terms are reasonable and your bottom line analysis about right.

This is not a normal investment and what one can say is the owner would have been in his rights to pocket the cash for a 51% stake. He is not doing that so the cash does go to the club and that is worth a lot in my book.