This is a non-independent marketing communication commissioned by The Family (Music). The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
Hipgnosis Songs Fund (SONG) aims to achieve income and capital growth by owning songwriters’ music royalties. It has seen continued growth, having raised £425m of equity since July 2020, which has now been fully deployed. SONG now owns 117 catalogues, comprising 93,000 songs which it has acquired on an average blended acquisition multiple of c.15x. This is equivalent to a running yield from the portfolio of c. 6.7%.
Aside from acquiring assets, there have been a number of other important developments over the past six months, including the manager having made a number of significant hires. The fund also acquired Big Deal Music which will offer efficiencies in collecting payments and active management of songs.
An important development announced today has been a 9.6% increase in the valuation of the ordinary shares’ portfolio since 31/03/2020 on a constant currency basis. GBP has appreciated against USD over the six months to 31/09/2020 (which detracted from NAV), such that the NAV total return after adjusting for FX and including dividends paid, was 9.5%. As was trailed at the September Capital Markets event, the independent valuers reduced the discount rate that they use to value SONG’s portfolio from 9% to 8.5%. This was the main driver of NAV returns over the period.
The shares are up 3% today post the announcement (30/11/2020). At the current rate of 1.3125p per quarter (or a total of 5.25p), the dividend yield on the ordinary share price of 121.5p is 4.3%.
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