HIPGNOSIS SONGS FUND share price back/ahead of Pre-Covid levels

Gavin Parry

7 min readJun 2, 2020

Update: 5 June 2020

June 3 - Hipgnosis gave an unaudited trading update to the London Stock Exchange that sent its stock price up 6.6% today to 113.50 pence, representing a market cap valuation of £699m (approximately $880m)

Hipgnosis owned 54 catalogs containing 13,291 songs as of the end of March. Hipgnosis previously confirmed that, as of mid-December last year, it owned 11,225 songs.
Its portfolio of those songs was recently independently valued at £757m (approx. $953m). Hipgnosis says this £757m valuation represented an increase of 8.6% at constant currency on the total amount it paid for said 13,291 songs, at £679m
Hipgnosis revenues from its catalog in the year to end of March 2020 were £64.7m, ahead of expectations. The firm’s adjusted operating costs in the year stood at £10.0m
Hipgnosis says it’s in “active discussions on a pipeline with an acquisition value of over £1bn”,
Hipgnosis said today that the £679m it paid for its 13,291 songs represented a blended acquisition multiple of 13.9-times historic annual earning.

This is no doubt helped by Hipgnosis’ observation that during COVID-19 lockdown, there has been a “surge” in streaming consumption of “vintage songs”.
The business has become a FTSE 250 company in only 20 months, which is the fastest of any company ever on the index. Also the business is number 23 biggest yielder on the FTSE 250 meaning there are only 22 companies paying a bigger dividend than we are at a time when many have had to cancel their dividends altogether

Original article below published 1 June 2020:

Merck Mercuriadis and his Hipgnosis Songs Fund have been a serious disruptor to the Music Industry over the last 2 years. Merck has been buying up hit songs at a rate of knots, raising new capital and has bold plans around a Songwriters Guild. Not many discussions amongst music executive don’t turn to this topic and what new strategies are required to stay competitive.

With the share price of the Fund bouncing back to almost a pre Covid high, and a recent capital raising being already invested, there is seemingly a strong level of confidence about the strategy.

Now that revenues from subscription streaming have become reliable and regular, Music rights as an investment asset class is a serious topic.

Warner and Big Hit both announcing IPO’s in the last weeks seemed at odds with almost every other industry right now. Is Music really recession proof ? .. it appears that way.

With the Hipgnosis financial statements for the Year ended 31 March 2020 due out in a few weeks, below is an executive summary that will bring you up to speed on this important industry player.

Stock Market Performance

The share price of Hipgnosis is currently at GBP1.07. An impressive performance given a pre Covid high GBP1.10 and recovering from a huge Covid announcement fall to GBP0.87. In comparison, the FTSE100 is down 16% on pre Covid highs.

Dividends for the last year were 5 pence, giving a 4.63% dividend yield. Very reasonable given the low or negative interest rates currently available around the world.
Market capitalisation is currently GBP665m (USD810m).
There have been three main equity raises to date on July 18 (GBP202m), April 19 (GBP142m) and late 2019 (GBP231m). Shares on issue are 615m.
Mercuriadis confirmed to MBW on 27 April 2020 — “We’ve made something just under 60 deals in the last 21 months and invested just north of $1 billion.

Update May 29

May 29 (Reuters) — Hipgnosis Songs Fund Ltd :
* HIPGNOSIS SONGS FUND — TO ADOPT NEW BORROWING POLICY UNDER WHICH CO MAY INCUR INDEBTEDNESS OF UP TO MAXIMUM OF 30% OF NAV

Catalogue and Song Acquisition

12,000 songs have been purchased (or partly), including those which have powered an array of hits such as Rihanna’s Umbrella, Ed Sheeran’s Shape Of You, Al Green’s Let’s Stay Together, Eurythmics’ Sweet Dreams (Are Made Of This) and Beyoncé’s Single Ladies.

Stock Market Announcements

Hipgnosis acquires Mark Ronson publishing rights

23 April 2020–70% of the music publishing catalogue of artist and producer Mark Ronson.

Bon Jovi’s Richie Sambora sells his songs to Hipgnosis

30 March 2020 — Hipgnosis Songs Fund has agreed a deal with former Bon Jovi guitarist Richie Sambora to buy his royalties for songs such as Livin’ on a Prayer and You Give Love a Bad Name.

Hipgnosis buys The Chainsmokers catalogue

20 August 2019 — Acquired music catalogue from The Chainsmokers — the 14th most streamed artist globally on Spotify.

Hipgnosis Songs Fund acquires catalogue from prolific songwriter Jamie Scott

21 May 2019 — Acquired a music catalogue from British songwriter and record producer Jamie Scott, it announced on Tuesday, adding that he had been responsible for 84 number ones.

Hipgnosis inks deal with hit songwriter Starrah

23 April 2019 — Acquired a music catalogue from Brittany Hazzard, or ‘Starrah’ — an American songwriter, producer and singer whose songs have achieved 94 number ones.

Hipgnosis acquires Teddy Geiger interest in six Shawn Mendes songs

9 April 2019- Acquired a music catalogue of Teddy Geiger’s copyright interest in six hit songs written for Shawn Mendes.

Hipgnosis acquires Despacito songwriter’s catalogue

16 November 2018 — Acquired the music catalogue of Jason Boyd, an American songwriter and producer better known by his stage name Poo Bear.

Industry Discussion on Prices paid for Catalogue

Industry discussion suggests Hipgnosis is driving music asset values to historic highs.
Mercuriadis argues in MBW: “As a public company, we have disclosures that we have to make to the marketplace that outline exactly what we’re doing, and those disclosures are verified and 100% accurate. We’ve announced that the better part of that billion dollars has been spent on an average of a 12.99X multiple [of net income].
The eye-popping dollar amounts Mercuriadis is paying have caused much consternation in the C-suites of major labels and publishing houses, entities that historically have ruthlessly fought against change. “Fuck that guy. What he’s paying is obscene,” says one publishing exec, who, like the 15 other industry sources contacted for this story, declined to comment on the record. In the music industry, paying for assets at a 10x multiple is considered top dollar. Mercuriadis is reportedly paying up to 20x, making it impossible for others to compete. “Executives from major publishing houses are by nature very acquisitive,” says Mark Mulligan, one of the industry’s most respected analysts and head of the London-based research firm MIDIA. “They’re walking away from deals because they can’t figure out how to make the numbers work with the multiples that are being paid.” — Marker

Future Plans

With an eye on the future, Mercuriadis suggests that over the next two years, Hipgnosis Songs Fund aims to take its current 12,000 song catalogue closer to the 50,000 mark — continuing a ratio of a fifth of these compositions being №1 chart hits, with another three-fifths being Top 10 hits.
To get there, he says Hipgnosis will have to spend another ten-figure sum of money, while growing its company to a headcount of 75 to 100 people.
“Ultimately I believe in the next two years, Hipgnosis will be at £2bn [pounds, circa $2.5bn] invested, and at that point we’ll probably own something less than 50,000 songs,” he says. MBW
He adds: “On the one hand, we’ll have reached perfect size at £2bn invested, [while] I also think the value of these incredible songs will be driven up; in six or seven years they’ll probably be worth two to three times what they’re worth today.” MBW
Ultimately, his goal with Hipgnosis — which went public on the London Stock Exchange in June 2018 — is to own 15% to 20% of the overall publishing market. Marker
He’s considering launching a songwriter’s union, something akin to the Screenwriters Guild, that would give songwriters more leverage to extract better deals from the industry’s power brokers. Marker

Published Financials summary from 30 Sept 2019 mid Year Result

IFRS NAV (ie Net Asset Value at Cost less Amortisation) at 30 September 2019 was GBP390m. Expect this to be around GBP660m+ in the 31/3/2020 Financials.
Operational NAV (ie Net Asset Value at current valuation) at 30 September 2019 was GBP422m. The key measure of success in the 31/3/2020 financials will be the valuation of the songs investment in comparison to what has been paid. Operational NAV compared to IFRS NAV is a key indicator of investment performance.
Songs Investment at 30 September 2019 was GBP312m. Fair value of songs was GBP344m. Based on media announcements expect this to be around GBP800m (ie USD$1bn)in the 31/3/2020 Financials.
All catalogues and songs are revalued each 6 months using a discounted cashflow method by expert valuer Massarky Consulting, Inc. The Valuation approach is outlined below.

Revenue breakdown shows that over a third of revenues coming from the acquisition of writers shares. Buying Writers shares is an increasingly common place activity in this brave new world, and something writers are actively seeking out.