BSH – Accounts Analysis 2019

Birmingham Sports Holdings today announced to the Stock Exchange of Hong Kong their financial results for the year ending June 30, 2019. The results make for some grim reading, with another huge loss made by the company despite a fairly heavy cut in operating expenses.

Birmingham City Accounts

You can read the accounts in full at this link.

The headline figures make for some tough reading.

While the loss for the year was somewhat better than last year’s accounts, BSH still made a loss of HK$364.49million last year (approx. £37.814m).

Of that, HK$310.737million was attributable to Birmingham City PLC (approx. £32.239m).

Revenues have remained stable at around HK$210million but BSH were able to cut operating expenses by around 11.5% to HK$470.368million last year.

While the wages for BCFC aren’t shown individually, we can see that the group spent HK$313.062mil (approx. £32.5m) on staff costs.

That means for every HK$1.00 of revenue BSH bought in, they spent around HK$1.49 on staff costs alone.

In the last couple of years BSH has tried to diversify its portfolio in an attempt to reduce dependency on the football club for profit.

The investment in One Park, Cambodia is starting to show a little return – but nowhere near enough.

Rent revenues from the buildings the company owns in the complex in Phnom Penh bought in just HK$4.467million in revenue last year which is around 2% of total revenue in the group.

In comparison, the rent for the entire building and block purchased in the transaction comes to HK$28.1million (as per the circular sent to shareholders in November 2018) which would indicate that the occupancy rate is around just 16%.

However, the investment did make a small profit of HK$27.343million (approx. £2.838m), mainly based on growth in the value of the properties.

If BSH are ever going to get into a state where they can sell off BCFC and keep the listing, then they will need to hope that they can improve on those figures massively.

For Blues the spectre of the profit and sustainability rules once again raises its head.

It’s easy to understand why Blues fans might be concerned as it would appear that once again Blues have smashed the £13million limit allowed by the rules.

However, due to the business done by Blues over the summer I can’t believe for one second that Blues did fail FFP.

The fact Blues spent €7million on Ivan Šunjić alone should prove that unlike the summer of 2018 there was no embargo placed upon the club.

It will be difficult to get an accurate picture of exactly where Blues are until the club accounts are issued; which is due to happen around December.

One thing it is possible to see is that despite all the foofaraw around James Featherstone and Garry Monk last year, the amount of money spent on agents fees dropped significantly from around HK$7.883million to HK$4.547million.

That drop however is more than likely due to the heavily restricted amount of transfer activity Blues had imposed on them last season in comparison to the season before under Harry Redknapp.

The strangest thing about these accounts is that they bare no relation to the rude health BSH has in the stock market.

Months of protest in Hong Kong have caused some economic downturn in the Special Autonomous Region, with the Hang Seng index down around 12% in the last five months.

In comparison, in the same period BSH is up 500% from HK$0.04 to HK$0.20 at the close of business, including a 100% rise in the last three weeks.

From an analysis point of view, nothing makes sense about that price rise.

The last time BSH turned a profit was back in 2012, with the company racking up just over HK$1.326bn worth of losses in the seven years since (approx. £137.56m).

Yet the current market capitalisation (share price x number of shares) is the highest I’ve ever seen, standing at HK$3.453bn (approx. £358m).

This means the share value is worth more than 5 times the book value of the company, and nearly 13 times the sales value.

In turn, that means both the club and the holding company are massively overvalued if anyone wanted to try and both either or both.

The paucity of shares traded recently (a daily average volume of around 23million shares, or just over 0.01% of the total number of shares issued) and the huge price rise must give some concern as to whether BSH is a “bubble stock”.

The Stock Exchange of Hong Kong regularly looks into that sort of thing to see if there is a concentration of shares in a small number of hands and if a warning to investors is merited.

I’m not an accountant, and I’m well aware that a set of accounts is a snapshot in time rather than a complete guide to a company’s health.

However, as a lay person I can’t help but feel worried that the parent company of Blues is still relying on money it can borrow from other companies to continue day to day business with no sign of profit.

I’ve long said that the benefactor model in football ownership doesn’t work because it relies on a continuous flow of money inwards – when does that flow of money stop?

Sooner rather than later something has to give.

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