Financial canary in the coalmine

Earlier this month, I was asked about Celtic’s “rocketing” share price, which hit levels not seen in 24 years.  The fundamentals of the club had not changed since qualification for the Champions League was secured, so the only thing I could see driving the rise was supporter sentiment.

THIS IS NOT INVESTMENT ADVICE, but there is a consensus that Celtic will continue to trade successfully.  I can think of a whole series of medium term challenges that will negatively impact our profitability, but as you know well, profitability is not why most of us (any of us) become shareholders and, since Celtic became a PLC, profits have never been paid to the shareholders, save for the preference share dividend Fergus established when he made the Initial Public Offering in 1994.

The share price will go up when more people want a piece of the action and will fall when people want to bail out.  Football shares often move in tandem, reflecting disposable income levels, economic conditions, or even the stock market bubble what popped in 2000, when Celtic shares last traded at their current level.

If a club’s share price is not moving in tandem with its peers, or any other economic indicator, there will be a reason why.  In April, two Newco shareholders offered 13,142 shares with an opening price of 18p – which was a significant discount on where price was a decade ago, with the club struggling through the lower leagues.

This recent share offering has not yet been bought and remains open until the end of the month, but that 18p price now seems ambitious.   The current highest bid from one buyer, who is prepared to scoop up 5000 shares, is 4p.

That’s a blow to existing shareholders who might want to cash out at some point, but with the price so low, what level can the club realistically hope to issue new shares at, should they need fresh investment?  And boy, do they need fresh investment.  At this level, a share issue to support the trading loss would render current influential shareholders impotent.  That would be a sore one.

Again, THIS IS NOT INVESTMENT ADVICE, but I expect sentiment and the share price would spring back if Newco qualifies for the Champions League this season, which would turn another year of operational loss into somewhere near breakeven.  This, in turn, would postpone the need for fresh investment.

You would be forgiven for thinking this share price looks like the canary in the coalmine.  Champions League qualification would let the noxious atmosphere escape for a while, but failure would trap all concerned.  It is difficult to overstate how important last season’s title was in Scottish football – way more than 2020-21.

I expect we will return to this topic again soon.

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