4th Mar 2024 12:22
(Alliance News) - Shareholders suffered more disappointment after Hipgnosis Songs Fund Ltd on Monday said it will divert its free cashflow toward paying down debt and won't resume paying dividends "for the foreseeable future".
The update came as an independent study found a lower valuation of the company's portfolio.
Hipgnosis is a London-based music investment and song management company with a market capitalisation of GBP644.3 million.
Shares in the company were down 15% to 53.40 pence each in London on Monday. In the year-to-date, the stock is down around 25%.
"The whole point of investing in a music royalties fund was to sit back and let the cash roll in, but dividends are no longer on the menu for Hipgnosis shareholders," said AJ Bell analyst Russ Mould.
"A steady flow of money into the fund every time one of the songs in its catalogue was played on the radio, performed live, featured in a film or on TV should have created a nice pool of money from which to pay regular dividends."
Hipgnosis Songs Fund invests in the music rights and is in dispute with its investment adviser, alleging misconduct against Hipgnosis Songs Management Ltd and its founder Merck Mercuriadis.
The dispute was sparked by an arrangement, later rejected by Hipgnosis Songs Fund shareholders, to sell part of the fund's portfolio to a joint-venture between Hipgnosis Songs Management and private equity firm Blackstone Inc. Mercuriadis last month stepped down as chief executive of Hipgnosis Songs Management, and the board of Hipgnosis Songs Fund also changed. The two sides currently are squaring off in UK High Court.
Hipgnosis Songs Fund on Monday said an independent valuation of its portfolio of music royalty rights by Shot Tower Capital LLC found that had a fair market value as of Friday last week of USD1.80 billion and USD2.06 billion, or USD1.74 billion to USD2.00 billion after deducting contingent catalogue bonuses of USD59.9 million.
This is down from fair value as of September 30 last year of USD2.62 billion, or USD2.55 billion after deducting a catalogue bonus provision of USD68.1 million.
"Shareholders have now been dealt another blow after Hipgnosis ordered an independent valuation of its assets and the figure has come in a lot lower than the one last reported. As such, cash flow is now being prioritised to reduce debt so there will be no dividends for the 'foreseeable future'. That news has taken the share price to a new record low and left shareholders wondering what's next for the investment vehicle," said Mould.
"Part of the original sales pitch was that Hipgnosis should have been uncorrelated to the markets and would therefore play a key role in helping to diversify an investment portfolio. What's occurred is an inverse correlation – markets have gone up and its share price has gone down."
Analysts at Stifel said the preliminary findings by Shot Tower are "smack in the middle of our expectations".
"Where do we go from here?" asked Stifel analyst Sachin Saggar.
"In short, the ingredients for a good portfolio can be seen, but it will require "cleansing" and some creativity. First and foremost attention will turn to how the board extract themselves from a manager who has lost the confidence of its shareholder base and based on these findings also lacked competence."
By Sophie Rose, Alliance News senior reporter
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