REG - Hipgnosis Songs Fund - Update on Due Diligence, Valuation and NAV

Hipgnosis Songs FundAnnouncement

04/03/2024 07:00

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RNS Number : 3677F  Hipgnosis Songs Fund Limited  04 March 2024

LEI: 213800XJIPNDVKXMOC11

4 March 2024

 

Hipgnosis Songs Fund Limited ("Hipgnosis" or the "Company")

Update on Due Diligence, Valuation and Net Asset Value

The newly constituted Board of Hipgnosis Songs Fund (the "Board") provides the
following update on the preliminary valuation report prepared by Shot Tower
Capital, part of the due diligence work being undertaken as part of the
Strategic Review (the "Strategic Review").

In the interim results for the six months ended 30 September 2023, the Board
stated that there were multiple data points and transactions within the market
which were at material discounts to the implied Fair Value of the Company's
assets at that time. The Board therefore sought advice on this matter from
Hipgnosis Song Management Limited (the "Investment Adviser"), which is
majority owned by funds managed and/or advised by Blackstone. The Investment
Adviser at first declined to give an opinion but, after repeated requests from
the Board, eventually provided an opinion which was heavily caveated. As a
result, the Board recommended that investors use the Fair Value and the
Operative NAV with a higher degree of caution and less certainty than might
otherwise be attached to it as an accurate reflection of the fair value of the
Company's assets.

The Board appointed Shot Tower Capital, LLC ("Shot Tower") as lead adviser to
provide an independent valuation of the Company's assets.

Shot Tower has performed a detailed review of the Company's portfolio,
conducting the valuation on a bottom-up basis, analysing the royalty statement
data of each of the Company's catalogues. The new valuation range is based on
a variety of factors and assumptions including whether a subject catalogue was
comprised of:

-      copyright interests (control) or passive royalty income streams;

-      publishing, writer's share, master, artist's share, producer or
neighbouring rights royalties;

-      stable royalty income streams based on vintage;

-      rights benefiting from administration rights or copyrights
returning to the Company in future years;

-      well known works performed by top artists in their respective
genres.

Shot Tower applied specific valuation assumptions based on the above criteria
for each catalogue with the weighted average for the entire catalogue,
reflecting a mid-point discount rate of 9.63%. Of particular note is the
proportion of cash net revenue generated from passive rights where the Company
does not control administration, distribution or licensing of a song.
Approximately 65% of royalties are currently generated from passive
publishing, performance and recorded music income streams with this figure
expected to decrease to between 40% and 45% over time as additional control
rights return to the Company upon the expiration of pre-acquisition publishing
agreements.

Shot Tower has now provided the Board with the preliminary valuation report as
at 1 March 2024, which estimates the fair market value of the Company's
Portfolio at between $1.80 billion and $2.06 billion and $1.74 billion and
$2.00 billion after deducting contingent catalogue bonuses of $59.9 million
(the "Shot Tower Valuation").

The Shot Tower Valuation compares to Fair Value as at 30 September 2023 of
$2.62 billion, and $2.55 billion after deducting the catalogue bonus provision
of $68.1 million.

Furthermore, Shot Tower have informed the Board that the Company's cash net
revenue after reduction for third party royalties and administration expenses
was $121.7 million for the 12-month royalty statement period ended 30 June
2023, which is consistent with the $119.4 million cash net revenue figure for
the 12-month period ended 30 September 2023, derived by BDO as part of its
quality of earnings analysis.

The Shot Tower Valuation midpoint of $1.93 billion therefore reflects a
multiple of 15.9x net royalty income prior to deducting contingent catalogue
bonuses and a reduction in valuation of 26.3% to the valuation as at 30
September 2023.

Adjusted solely for the Shot Tower Valuation, the Company's Operative NAV
would be approximately $1.17 per Ordinary Share (the "Pro-Forma Operative NAV
per share") as compared to the last reported Operative NAV of $1.7392 per
Ordinary Share as at 30 September 2023. Based on the Dollar to Sterling
exchange rate of 1.266 on 1 March 2024, being the last business day prior to
the publication of this announcement, the Pro-Forma Operative NAV per share
presented in Sterling would be 0.92 pence per Ordinary Share.

The Pro-Forma Operative NAV per share does not include an estimate of any
potential corporation tax charges (or equivalent in the US) that would be
incurred by the Company if it were to dispose of all of its Catalogues at the
Shot Tower Valuation.

Due to the decrease in Operative NAV, the Board considers it appropriate to
reduce gearing and therefore intends to use the Company's free cashflow to pay
down debt and, therefore, does not intend to recommence paying dividends for
the foreseeable future.

Shot Tower has told the Board that it expects to present its final due
diligence findings to the Board by Monday, 25(th) March 2024. The Board
expects to be able to provide a further update on the complete findings of
Shot Tower's due diligence by Friday, 29(th) March 2024.

Robert Naylor, Chairman of Hipgnosis Songs Fund, said:

"The newly constituted Board is making good progress with the due diligence
work that will underpin its strategic review. We are disclosing the valuation
at this time given its material difference to valuations previously disclosed.
The Board will provide further detail on this when the due diligence is
complete. The Board remains focused on identifying all options to deliver
shareholder value."

 

 For further information please contact:

Hipgnosis Songs Fund

                                +44 (0) 20 7496 3000
 Robert Naylor

 Via Singer Capital Markets

 Singer Capital Markets - Corporate Broker                         +44 (0) 20 7496 3000

 James Moat / Alaina Wong / Angus Campbell (Corporate Finance)

 Alan Geeves / James Waterlow / Sam Greatrex (Sales)
 Headland Consultancy - Financial PR                               +44 (0) 20 3805 4822

 Susanna Voyle / Charlie Twigg

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