Ghazl El-Mahalla FC, the first Egyptian company specializing in football activity, has launched its IPO subscription on the EGX on Sunday, June 12, 2022, up until 1 July 2022. The company focuses on developing junior talents to promote them to the first team and sell them to European and Gulf Football Leagues instead of buying first-team players.
The IPO is one of the first types to list on the EGX, having a green field company raising its capital at par. The company is looking to raise EGP 98M from the IPO, by offering its share price at a par value of EGP 1.
What is an IPO?
A company announces an initial public offering (IPO) by offering its shares to the public for the first time. It is how a company transitions from being privately owned by a select group of investors to becoming a publicly listed company so the general public can invest.
Football as an investment📈
Football is a popular sport in almost every country in the world with the largest global audience of 3.5 billion according to FIFA estimates. The global popularity is partially due to the simplicity of the game which can be played with little equipment and basic technique from a young age.
But how do football clubs make money?
Football clubs generally have three revenue streams:
1) Broadcasting – derived from television rights relating to domestic, continental, &/or international competitions. Broadcasting revenue can also include prize money received from various competitions, which is directly correlated with the team’s performance.
2) Matchday – includes ticket sales, which are a function of the club’s stadium capacity & its attendance rate.
3) Commercial – includes sponsorships, as well as merchandise & product licensing. Clubs can monetize their brand & their fans by signing sponsorship deals with companies. Clubs can also monetize by selling branded merchandise & products.
While commercial revenues stayed relatively unchanged, matchday revenues fell significantly in the 2020/2021 season as the pandemic forced (most) people to stay at home. An uptick in broadcasting rights revenues made up for the fall in matchday revenues, as television viewership increased. In the pandemic-hit 2020/2021 season, the Top 20 clubs recorded 8.2 billion euros in revenue, up 1% YoY. This goes to show the resilience of the football industry, that even as matchday revenues took a hit, broadcasting revenues made up for it.
Examples of Global Public FCs
While this IPO is the first of its kind in the region, it is not the first time a football club goes public. Ghazl El-Mahalla FC is following the footsteps of legendary organizations such as:
- Manchester United FC – Listed on the New York Stock Exchange, $ 1.87 Bn Market Cap
- Juventus FC – Listed on Borsa Italia, $ 0.93 Bn Market Cap
- AS Roma FC – Listed on Borsa Italia, $ 0.28 Bn Market Cap.
- AFC Ajax – Listed on EuroNext, $ 0.21 Bn Market Cap.
Key drivers that can affect the share price💲
Company Outlook
The company’s outlook is an important indicator of the share price’s performance, below are relevant factors that may affect the share price of a company that specializes in football activity.
- Company Financials
Just like any other listed company, the club would have to disclose its yearly financials. This includes revenue, the club’s net assets (stadiums, training facilities, and players), & debt, which Football clubs tend to take on over the years. - Team Performance
The position a club finishes its season in, compared to the competition in the table, is an indicator of the club’s growth and performance. Teams that qualify for continental tournaments receive the added benefits of increased broadcasting rights & media coverage. On the other hand, worse-performing teams risk relegation into a lower league, which offers significantly lower monetary prizes & media coverage. - Buying/Selling Players
The most famous example of a player driving up a club’s share price, just by joining the team, would be when Cristiano Ronaldo rejoined Manchester United. The day it was announced that the Portuguese icon would rejoin the club led fans to believe the team is going to restore their glory days as well as leading investors to believe that Ronaldo could boost the club’s commercial value. The MANU stock jumped as high as 9.7% on the day of the announcement.
Industry Outlook
One of the main drivers of a company’s stock price is industry performance – it’s important to look at an industry’s market size, expected growth, and competition. Investors should focus on industries that have favorable long-term growth prospects. There are plenty of public sources of information for almost any industry.
Company Valuation
Does the company’s valuation actually reflect the perceived value of the company? Valuation is the process of determining the current (or projected) worth of an asset or company. An overvalued stock is said to be priced in the market higher than its perceived value, whereas an undervalued stock is priced lower. Some compare buying undervalued stocks to buying them at a ‘discount’ – an investment strategy called value investing.
Acquisitions in Football
Looking at acquisitions in football will help you gauge how attractive the industry is for investors. There are noticeable acquisitions in world football in the past 15 years:
- Manchester City F.C. – Acquired by Mansour bin Zayed Al Nahyan, Deputy Prime Minister of the UAE
- Paris Saint-Germain F.C. – Acquired by the Qatar Investment Authority
- Liverpool F.C. – Acquired by Fenway Sports Group Holdings, Owners of the Boston Redsox
- AC Milan F.C.- Acquired by RedBird Capital Partners
The Egyptian Football Industry⚽
Egyptian Companies Entering the Football Industry
An industry that captures the attention of close to 50% of the earth’s population is an irresistibly attractive investment for corporations and investors around the world. If we look at the Egyptian market, we can find a trend of the biggest retail-focused corporations entering the football industry by establishing football teams, rather than simply sponsoring an existing club.
- National Bank of Egypt – the biggest retail bank in Egypt, owns National Bank FC
- Pharco Pharmaceuticals – the largest manufacturer in the MENA region, owns Pharco FC
- Ceramica Cleopatra Group – an international player in the ceramics industry, owns Ceramica Cleopatra FC
- Eastern Company – an EGX-listed tobacco manufacturer, owns Eastern Company SC
As well as newcomers:
- Newly established Zed Football Club, which is owned by Onsi Sawiris’ ZED Sports Investment Company
- Future FC, which currently sits in 4th place in the first division after being bought for EGP 80 million less than a year ago
Owning a football club does not only create new revenue streams for an organization, it also brings constant brand exposure, as football fans get more familiar with the teams (& therefore company) names.
Top Clubs Revenues
In the most recent season, Al Ahly FC received EGP 60 million in matchday revenue, EGP 22.5 million in prize money for finishing runner-up in the African Champions League, EGP 130 million in commercial revenues, & EGP 100 million in broadcasting revenues.
Zamalek FC recorded EGP 10 million in continental competition prize money, & EGP 155 million in commercial & broadcasting revenues combined, according to Kora 11.
Acquisitions in Egyptian Football
The acquisition trend has been evident in the Egyptian Premier League, seeing several club takeovers:
- Al Assiouty F.C. – Acquired by Pyramids F.C.
- Coca-Cola F.C. – Acquired by Future F.C.
- FC Masr – Acquired by ZED F.C.
Ghazl Mahalla at a glance👀
History of the Club
Ghazl El-Mahalla Football Club was established in 1936 by the then-parent company “Misr Spinning and Weaving Company”. The club came to life as football became a popular hobby between the parent company’s employees & staff.
The sport became so popular that a stadium was eventually built 11 years later, & Ghazl El-Mahalla Football Club started competing against other companies’ teams. Little did they know, they’d compete & eventually win the Egyptian Premier League by 1973.
Management, Leadership & Squad
The club is headed by Ali El Abbassi as Chairman and Managing Director. The team has a newly appointed head coach in Mostafa Abdo, a previous coach of a number of second division teams. This is Abdo’s first stint as head coach of an Egyptian Premier League team. Ghazl El-Mahalla’s squad consists of 33 first-team players with an average age of 27 years, & has an estimated market value of 4.48 million Euros.
The team currently sits in 11th place in the Egyptian Premier League, after having been promoted to the first division a couple of years ago.
Ghazl El Mahalla’s History of Producing Talent
According to interviews with Ali El Abbassi (Club CEO), the club is on a quest to restore its golden age of talent production. Here is a list of familiar names that came out of the Ghazl El-Mahalla talent pool:
- Ahmed El Mohamady – Sold in 2006 for EGP 1.25 M
- Reda Metwally – Sold in 2006 for EGP 1.25 M
- Nader El Ashry – Sold in 2009 for EGP 3 M
- Mahmoud Fathallah – Sold in 2007 for EGP 3.25 M
- Mohamed Abdelshafy – Sold in 2009 for EGP 3.6 M
Company Forecasts
While most companies that go public are required to file historical financial statements, this is not the case for Ghazl El-Mahalla. Since the club has no historical financial reports, it is required to provide financial forecasts. Here are their projections:
As an investor, it is very important to look at the company’s ability to meet these forecasts.
- Revenue is expected to more than double by 2025
- The company is expecting to turn EGP -10 million in losses in 2022 to more than EGP 40 million in profit by 2025
- Expected internal rate of return (IRR) of 21.45%
- Going by this projection, an EGP 100k investment would become EGP 264K after five years
Ghazl El-Mahalla’s IPO🔔
A Couple of Firsts
Ghazl El-Mahalla Football Company is the first football company in Egypt, & the first in the Arab world to go public.
No Stabilization Fund
Ghazl El-Mahalla’s IPO will not have a stabilization fund. But what is a stabilization fund, anyway? A stabilization fund guarantees investors who subscribe to an IPO the right to sell back their shares at the same subscription price within the first 30 days of trading.
The IPO is 100% Primary
Ghazl El-Mahalla’s IPO is a 100% primary offering, meaning that all fund proceeds will go towards future growth plans for the company. So where are the proceeds going, exactly?
- Enhancing player facilities
- Upgrading training facilities including training ground & internal stadium systems
- Increase & develop academy facilities
- Recruit world-class coaches for the development of the first team & academy players
The subscription window is open from June 12, 2022, until August 14, 2022.
It’s worth noting that Misr Spinning & Weaving Company had injected EGP 65 million into Ghazl El-Mahalla Football Company’s capital. Misr Spinning & Weaving Company has the right to use the stadium for 20 years, & enjoys a preferred shares treatment whereby every share it owns counts as two votes at the company’s general assembly meetings.
In the case of oversubscription
Ghazl El-Mahalla’s IPO will follow a slightly amended oversubscription system than typical IPOs, whereby there’ll be no oversubscription for the first 25,000 shares ordered per individual. If an individual’s order exceeds 25,000 shares, then every share after that will be subject to the oversubscription system.
This system creates a kind of justice among investors, especially small investors who usually end up with a significantly little amount of shares due to high oversubscription rates.
In the case of under subscription
If demand for shares in the IPO does not meet the 98,000,000 offered shares, then all investors’ money is returned back to them.
How to subscribe through Thndr📲
You can use Thndr’s IPO access screen that allows its investors to subscribe to IPOs using its mobile app. All you have to do is click on the explore tab, search for Ghazl El-Mahalla, & click buy.
- Search for “Ghazl El-Mahalla” on the Thndr App
- Click on the security
- Submit a buy order for no less than 1,000 shares & no more than 15,000,000 shares
Things to avoid doing when there is an IPO😬
- Waiting until the last minute to set up or fund your account
- Opening and funding your account early on could save you from missing out on the IPO. Our app has an easy account setup, but we still need to register you with the EGX and complete some paperwork.
- Not having a strategy
- The best investing strategies increase your returns, minimize your risk, and let you meet your goals. Before you participate in an IPO, you need to know the right strategy that works best for you.
- Not inviting your friends to make money
- IPOs are a great chance to make money so why not share the opportunity with your friends. They would definitely thank you afterward. Moreover, you can both earn up to EGP 1,000!
More Information
The “Public Subscription Note”: A tell-all document is required of all companies going public in Egypt and should include all information about the company. It should be required reading for anyone thinking of investing.
