Fund Profile

Hipgnosis Songs 19 September 2019

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Hipgnosis Songs. 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.

Overview
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Overview

Hipgnosis Songs Fund (SONG) is a £409m market cap listed fund, aiming to achieve income and capital growth by owning songwriters’ music royalties. The managers (The Family (Music) Ltd) believe that, aside from being able to buy these royalties from songwriters on a gross yield of c. 8%, investors should benefit from trends and active management, which will increase the level of income (and capital value) over time.

The managers are aiming for total returns of greater than 10%, and have demonstrated their ability to invest the fund’s capital relatively quickly – no mean feat in a market where there are no formal brokers or “exchange” for royalties. Merck Mercuriadis leads the management team, and he is clearly a music industry “insider”; we understand his relationships have been key to accessing the quality of the portfolio that SONG has built up so far.

Having spoken to the team, they tell us that royalties from the copyright of songs tend to be relatively predictable – certainly after the first three years when the “buzz” has largely subsided. We discuss the intricacies of music royalties in more depth in the portfolio section, but it is worth noting that these are long life assets, with copyrights in some cases lasting for 70 years past the death of the writer. The catalogues acquired by 31st August have seen revenue growth (excluding post 2016 releases) of 49% from streaming sources, and 19% overall.

Streaming is increasingly being recognised as a huge growth area for the music industry, not only opening up the potential market (by reducing distribution barriers to zero), but also significantly increasing and extending the length of a song’s earning potential. JPMorgan predicts that global music industry revenues will surpass the peak of the late 1990s, with 10% p.a. compound growth expected through to 2030. The number of people paying for a streaming music service is rapidly increasing with 255m paying subscribers for streaming services currently (according to the IFPI Global Music Report 2019), and which JPMorgan predicts will grow to north of a billion. Notwithstanding this, the managers intend to apply significant resource towards the management of the fund’s songs, and to boost revenues and the capital value of the portfolio using more intensive, active management.

In its first year, SONG has delivered what it promised at launch. Recognised net revenues from the portfolio from incorporation on 8 June 2018 to the financial period end on 31 March 2019 were £7.2m, equivalent to a 6.1% gross yield on the £120m invested component of the portfolio over the period - in line with projections at launch. The company has paid its target dividend of 3.5p over the first year (in four instalments). As we examine in the dividend section, the company has a stated aim to pay dividends of 5p in the current financial year.

Since launch to 31 March 2019 (the last reporting date), the fair value NAV has risen from 98p to 103.27p. Including dividends paid, this means that the total NAV return has been 6.4% - a strong performance during a period in which the fund has been sitting on cash as it builds the portfolio up. The shares are trading at a small premium to fair value NAV, which means that total shareholder returns (including dividends) to the end of August has been 8.5%.

The prospective dividend of 5p per share equates to an income yield of 4.8% at the share price on 31 August 2019, which compares with the Global Equity Income sector average yield of 4.1%, 4.1% for infrastructure funds, and 5.1% for the renewable infrastructure funds (Source: Numis).

Continue to Portfolio

Fund History

13 Jul 2022 Ready player one
We wonder where, if anywhere, should investors look for returns after a tumultuous first half of the year…
06 Jul 2022 A game of two halves
In the second article of our series on the AIC Flexible Investment sector we see how performance has stacked up during two years when markets were poles apart...
18 Feb 2022 Fund Analysis
SONG has continued to deliver, yet now trades at an attractive discount...
12 Jan 2022 Bargain hunt
We survey the discount opportunities in the market and update on the performance of our Discounted Opportunities Portfolio…
30 Dec 2021 Great expectations
As the last of the mince pies wilts in the fridge, topped with a generous helping of stilton, the Kepler Trust Intelligence team stick a finger in the air and point toward their top picks for the year ahead…
21 Jul 2021 Every which way but loose
We break down the AIC Flexible sector into more useful segments…
20 Jul 2021 Fund Analysis
2020 has proven SONG’s resilience, with potential for a re-rating…
19 May 2021 The complexity premium
We examine the idea that extra returns can be obtained from buying investments which are perceived to be more complex by most investors...
31 Mar 2021 Fund Analysis
With additional portfolio disclosures recently made, SONG looks set to benefit from tailwinds in the music industry…
24 Feb 2021 Dire Straits or Money for Nothing?
As discounts reach historically narrow levels across the board – our analysts debate whether a premium is a price worth paying…
30 Nov 2020 Flash update: Hipgnosis Songs Fund
SONG NAV moves up, and continues to offer potential income and capital growth…
25 Jun 2020 Fund Analysis
SONG owns and manages songwriter royalties, aiming to deliver a high income and capital growth...
09 Oct 2019 Bond proxy?
As a replacement or complement for longer duration bonds, listed alternative income funds look an interesting, well… alternative..
25 Sep 2019 One-stop shop: how multi-asset trusts offer superior diversification
Investment trusts are particular suited to this mode of investing. We examine their advantages over open-ended funds and highlight the trusts which do it well…
19 Sep 2019 Fund Analysis
SONG owns and manages songwriter royalties, aiming to deliver a high income and capital growth...
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