Hipgnosis investment trust boss laments declining share price as Songs Fund’s discount widens to nearly 50 per cent
- Hipgnosis’ share price has plummeted 35% year-to-date
- Its shares are now trading at a 47% discount to operative NAV of 149.82p
- Revenue from royalties was up 4.2 per cent in the 6 months to 30 September
Hipgnosis boss Merck Mercuriadis has said he shares investors’ disappointment at the performance of the trust’s share price following a challenging year.
Since its launch four years ago by Mercuriadis and Chic frontman Nile Rodgers, Hipgnosis has snapped up the rights to tens of thousands of songs from well-known musicians.
The portfolio now comprises 146 catalogues, totalling 65,413 songs, with an aggregate fair value of $2.67billion, according to its latest results.
Hignosis boss Merck Mercuriadis has said the trust’s share price does not reflect the value of the ‘iconic’ portfolio
The trust might be a hit with musicians looking to cash in on their back catalogues but its share price has plummeted nearly 30 per cent in the last six months as investor interest has waned.
‘I share the disappointment of shareholders that the true value of our iconic songs is not being reflected in today’s share price,’ said Mercuriadis.
‘Hipgnosis is an asset based company with a catalogue unrivalled for its extraordinary success and cultural importance.’
Hipgnosis shares were up 2.74 per cent to 82.2p at lunchtime but have lost nearly 35 per cent year-to-date.
Mercuriadis said: ‘The current share price implies that our company is valued using a 12 per cent discount rate, presenting an incredible investment opportunity considering this is a deep discount compared to multiples currently being paid in the market.’
Despite a ‘very challenging environment’, the trust’s operative NAV per share was broadly flat, decreasing from $1.8491 to $1.8312 in the six months to the end of September.
In sterling terms it rose by 16 per cent from 140.79p in March to 164.06p in September.
The trust also disclosed an operative NAV of 149.82p as at 6 December, trading on a 47 per cent discount as at yesterday’s close.
Jason Hollands, managing director of Bestinvest said: ‘Like a lot of investment companies that provide exposure to alternative asset classes, Hipgnosis is currently on a very steep discount to reported Net Asset Value or circa -45 per cent.
‘This reflects weak investor sentiment, especially towards more niche and esoteric investments, but also the impact of rising bond yields on the way investors value future cash flows from royalty income streams in today’s money and so there may be some scepticism towards the NAV reflected in the discount.’
‘The actual interim results numbers released today seem a little better that analyst expectations in terms of streaming revenues, but the NAV has been more or less flat. The steep discount to NAV and high dividend yield of 6.6 per cent will tempt income seekers looking to diversify beyond equities, but do near in mind this is quite highly geared.’
Pro-forma annual revenue, representing royalty revenue earned by the catalogues in the portfolio, was up 4.2 per cent over the six months, with catalogues older than 10 years up 7.7 per cent.
Mercuriadis said: ‘In the wider music market, people continue to listen to and pay for music irrespective of today’s cost of living challenges with annual audio streams in the US passing the one trillion mark for the first time despite a full month of the year remaining.
‘Paid for streaming continues to grow, there are now more than 523million premium paid subscribers globally. Apple Music has moved beyond the 9.99 price point in major markets and in 2022 we saw a full return to live music.
‘These are all exciting indicators for the further growth that we will experience as income flows through the collection process into Hipgnosis.’