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Hipgnosis Songs reports interims and says pipeline worth more than £1bn

Hipgnosis Songs Fund: SONG

Hipgnosis Songs reports interims and says pipeline worth more than £1bn – Hipgnosis Songs (SONG) has reported interim results this morning, covering the six-month period to 30 September 2019.

As at 30 September 2019, the company had deployed approximately £199.5m during the interim period and £319.4 million in total since IPO on 27 catalogues (7,475 songs). This has increased to approximately £505.6m on 42 catalogues (11,225 songs) as at 10 December 2019. 

27 catalogues acquired and a pipeline of £1bn

Operational highlights from the period include:

  • At the period end, SONG had invested approximately £319.4m through the acquisition of 27 catalogues on a blended acquisition multiple of 12.84x historical annual net income, resulting in interests in 7,475 songs;
  • 1,061 Songs have held Number 1 positions in global charts;
  • 4,027 Songs have help top 10 positions in global charts;
  • 15 Songs have won Grammy Awards;
  • During the period £192.6m of gross equity capital was raised through secondary placings of ordinary shares;
  • Post period end £231.0m of gross equity capital was raised through our first issue of C shares;
  • In September, the company transferred its entire issued share capital to the premium listing segment of the official list of the FCA and to the London Stock Exchange’s premium segment of the main market;
  • Since the period end the company has invested a further £186.1m through the acquisition of 15 catalogues taking the total portfolio to 42 catalogues, comprising 11,225 Songs, with a blended acquisition multiple of 12.99x historical annual net income;
  • SONG says that its manager, The Family (Music) Limited, is currently in advanced stage discussions on an investment pipeline of over £1bn.

Financial Highlights

  • Operative NAV increased by 5.0% to 108.46p (31 March 2019: 103.27p);
  • Fair value of catalogues, as determined by the independent valuer, increased to £344.6m representing
    • A fair value increase of £16.6m (5.0%) since 31 March 2019
    • A fair value increase of £25.4m (7.9%) on acquisition cost, of which £15.6m has been driven by like-for-like valuation increases excluding the impact of changes to USD:GBP exchange rates
  • Net revenue from the portfolio increased to £22.6m which SONG says was ahead of its expectations;
  • Adjusted EPS increased to 3.55 pence per ordinary share and fully covered dividends declared in respect of the period;
  • At 30 September 2019, total dividends paid since launch on 11 July 2018 is 3.5p per ordinary share representing a total NAV return of 11.96%;
  • Dividends of 2.5p paid during the period representing a total NAV return of 7.45% for the 6 month period;
  • SONG says it remains on track to achieve target dividend of 5 pence per Ordinary Share for the full financial year;
  • Since 30 September, a second interim dividend of 1.25 pence per ordinary share has been declared and paid;

Merck Mercuriadis, CEO of the management company, said: 

“I created the company to establish proven songs as an asset class and give the investment community access to the predictable and reliable revenues generated by these incredible Songs. I am delighted to report on our second interim period where we are seeing excellent returns being generated from the catalogues that we have acquired.

Since 31 March 2019, we have acquired a further 30 Catalogues which contain some of the most culturally important and commercially successful Songs of all time including Eurythmics’ ‘Sweet Dreams (Are Made of This)’, Journey’s ‘Don’t Stop Believin”, The Chainsmokers’ ‘Closer’, Al Green’s ‘Let’s Stay Together’ and Ed Sheeran’s ‘Shape of You’ and ‘Castle On The Hill’.

I am thrilled that we now co-own five of the “Top 10 Songs of the Decade” as recently announced by Billboard Magazine. This includes the record breaking Number 1 hit of the decade ‘Uptown Funk’ which topped the singles charts in 19 countries including staying at Number 1 on the Billboard Hot 100 for 14 consecutive weeks making it one of the longest running Number 1 singles of the decade. It also broke the US and worldwide streaming record whilst being certified 11x platinum in the US.

I am delighted that we have transferred our entire share capital to the gold standard of stock exchanges, the Premium Listing Segment of the London Stock Exchange. By complying with the highest standards of corporate governance I hope Hipgnosis is more accessible for all investors who want exposure to our incredible portfolio of Songs.

I must thank all of our Shareholders for their endorsement of our thesis and their continued support, particularly backing us with £282.1 million of new equity capital  in the last four months, taking our total funds raised since launch 16 months ago to over £625 million. We remain the only listed fund globally that exclusively offers exposure to the uncorrelated returns generated from proven hit songs and we have lined up the finest available song Catalogues to quickly invest our remaining funds.

The song and recorded music industry continues to grow driven by increasing streaming revenue as the number of paid subscribers to streaming platforms grows rapidly, both within the established platforms and with new entrants moving into the marketplace.

Spotify recently announced that it had 113 million premium subscribers at 30 September 2019, up 31% year-on-year. Spotify’s total MAU (including paying and advertisement funded customers) in Q3 grew 30% year-on-year to 248 million. Apple Music, the other market leader, announced in June 2019 that it had passed 60 million paying subscribers, up from 50 million in June 2018. We expect another big announcement from them soon.

Whilst the U.S. remains the dominant territory in music streaming, accounting for 39% of global streaming revenue in 2019, Southeast Asia (excluding India) remains Spotify’s fastest growing region, whilst India outperformed their forecasts by 30% this third quarter 2019. This continues to support the thesis that streaming will provide legitimate music revenues from emerging markets which were previously dominated by illegitimate consumption of music.

ByteDance, the company behind the social media platform TikTok, is expected to launch a music streaming app next month with the aim of challenging Spotify, TencentMusic and Apple Music in Asia and India. ByteDance have held talks with several global music companies to strike deals for the new platform and it was recently revealed that it has amassed more than one billion monthly active users across its apps. The songs we have acquired by The Chainsmokers, Ariana Grande, Taylor Swift, Ed Sheeran, Camilla Cabello, Shawn Mendes and Justin Bieber are particularly important in this space.

Our excellent first half is a testament to the quality of the Songs that we have acquired to date and are proud to see so many of our Catalogues performing so well. The latest results from Spotify and Apple continue to show unbelievable growth in premium streaming as the world changes the way it consumes music. Streaming growth, both in the Western world and emerging markets, is driving proven hit Songs revenues and therefore drives values up. Most excitingly with forecasts of 2 billion paid subscribers by 2030, we are only at the start.

One step at a time, we are amassing the leverage and the support necessary to bring positive change to where the songwriter sits in the economic equation. The songwriter is more responsible than anyone for the success of an artist and the music industry in 2019 and they and their songs must be properly recognized. Important steps have been taken by the Copyright Board and with the Music Modernisation Act to acknowledge this but this is just the tip of the iceberg. We will use our leverage and support to positively impact where the songwriter sits which is not only important for the creative community but is in total alignment with the best interest of our investors.

With investors needing uncorrelated assets more than ever, and proven Songs producing reliable and predictable income, the new asset class of proven Songs is, in our view, now more investible than gold and oil.

With over £1 billion in our investment pipeline, the Songs and Catalogues we are acquiring over the next days, weeks and months are just as impressive as what we have put together in our first 16 months and will also skew the vintage of the overall portfolio older.”

SONG’s catalogue at 30 September 2019

Catalogue

Acquisition Date

Interest Ownership

Total Songs

Terius Nash (The-Dream

11 July 2018

75%

302

Jason Boyd (Poo Bear

16 November 2018

100%

214

Bernard Edwards

28 November 2018

37.5%

290

TMS

7 December 2018

100%

121

Tricky Stewart

17 December 2018

100%

121

Giorgio Tuinfort

3 January 2019

100%

182

Itaal Shur

30 January 2019

100%

209

Rico Love

21 March 2019

100%

245

Sean Garrett

21 March 2019

100%

588

Johnta Austin

21 March 2019

100%

249

Ari Levine

31 March 2019

100%

76

Sam Hollander

31 March 2019

100%

499

Teddy Geiger

9 April 2019

100%

6

Starrah

23 April 2019

100%

73

David A. Stewart

10 May 2019

100%

1,068

Jamie Scott

21 May 2019

100%

144

Al Jackson Jr.

30 May 2019

100%

185

Michael Knox

10 June 2019

100%

110

Lyric Catalogue

12 June 2019

100%

571

Brian Kennedy

12 June 2019

100%

101

Jon Bellion

12 June 2019

100%

180

Neal Schon

21 June 2019

100%

357

Eric Bellinger

1 July 2019

100%

242

Jason Ingram

1 July 2019

100%

462

Andy Marvel

26 July 2019

100%

740

Benny Blanco

7 August 2019

100%

93

The Chainsmokers

20 August 2019

100%

47

Total

7,475

SONG: Hipgnosis Songs reports interims and says pipeline worth more than £1bn

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