At the time of writing the Celtic ordinary share price is sitting at 68p. For more than a year before the Rangers International share price was announced last month the price of Celtic shares never left the thirties. There has been considerably conjecture on why this is, which is probably worth some comment.
Rangers International’s (RI) opening share price of 70p valued the company at around £50m. By contrast, Celtic, who are and always have been, a top flight club, and who are in the financially rewarding Champions League, were valued at around £34m. On an initial pass, Celtic looked undervalued.
There are a few caveats to this story worth telling before you empty your holiday fund on the latest batch of Dutch tulips. Since Fergus McCann took over in 1994 Celtic have only paid dividends on preference shares, which the FSA require the club to regard as debt, not equity. No dividends have ever been paid on the ordinary shares and there appears to be no appetite among shareholders for this to change.
Celtic shares are also particularly illiquid – very few are available for sale at any point in time. When even a small surge of new buyers enter an illiquid market, without a corresponding rise in the number of sellers, a share price can be bid up considerably. Consider a stable average of 10 buyers and 10 sellers each day of a stock with 29,000 shareholders suddenly changing to 20 buyers and 10 sellers. The price would rocket despite no change in the fundamentals.
The possibility of Celtic playing in a domestic league beyond Scotland has again been on the agenda. Such an outcome would radically change the financial prospects of the club and is likely to have a considerable impact on the share price, but this remains no more than a talking point at the moment. Investors should regard this potential outcome as speculative.
Rangers International attracted considerable investment from organisations seeking a level of financial return which supports that £50m valuation. We can speculate what percentage return they will expect but the RI board have been explicit on their intention to produce a financial return.
I’ll not be investing in either company at the moment. Celtic will not pay a dividend on equity shares (which in years to come will evidently be a really good thing) and although I am sure Rangers International’s board will deliver an on-target return for investors (which in years to come will evidently be a really good thing), they appear negatively surprised by recent news on structural change in the Scottish game. Always take professional advice before investing more than you can afford to lose.
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