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Hipgnosis Song says total NAV increased 17.7% while streaming up over pandemic

Hipgnosis Songs Fund: SONG

Hipgnosis (SONG) released a trading update, in lieu of full-year results to be announced in July.

Highlights include:

  • 42 Catalogues acquired for £560m taking the total Portfolio to 54 catalogues
  • £422.9m of new equity raised and fully deployed
  • Transfer from the Specialist Fund Segment to the Premium segment of the Main Market of the London Stock Exchange and admission to the Premium listing category of the Official List of the FCA
  • Inclusion in the FTSE 250 index
  • Total NAV Return of 17.7% (unaudited)
  • Operative NAV increased by 13.0% to 116.7p per Share (unaudited) since 31 March 2019 and by 14.3% since 10 January 2020
  • Valuation uplift across the Portfolio of 11.4% since acquisition (8.6% on a constant currency basis)
  • Catalogue revenues ahead of what were strong management expectations at £64.7m

Merck Mercuriadis, founder of SONG and its manager, The Family (Music) Limited, commented: “We are very excited about these results and we are particularly proud that everything we have promised our investors over the last two years has either come to fruition or been exceeded. We have bought amongst the finest songs of all time against a backdrop of dramatic streaming growth and we are adding significant value by actively managing these great songs and bringing efficiencies to collection.

A core part of our thesis is that song revenues are uncorrelated as, whether in good times or challenged, music is always being consumed. While we would not have wished for a pandemic to demonstrate this it has indeed done exactly that and that has been reflected in our strong performance. We have become a FTSE 250 company in only 20 months, which I’m told is the fastest of any company ever on the index, and we are now the 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.”

COVID-19 Impact

On COVID-19, Merck  said: “2020 has not been the year expected with the world feeling the devastating effects of COVID-19, not only on the global economy, but also with the tragic loss of lives.

At this difficult time, people have looked to music for a sense of positivity and normality. This is being seen most evidently with streaming where there has been a surge in listening to vintage songs.

Spotify’s first quarter 2020 results showed a 5% quarterly increase in paid streaming subscribers, which was at the top end of their expectations set before the onset of COVID-19. In addition, Neilson’s report, ‘COVID-19: Tracking the Impact on the Entertainment Landscape – Release 3’, highlighted that streaming subscriptions in the first two weeks of April were higher than the previous 8 weeks as consumers looked to stay entertained through lockdown. Importantly for Hipgnosis, consumers are re-discovering ‘older hits’ during this time with 84% of music consumers listening to ‘music that they currently listen to’ and 62% listening to ‘music they used to listen to but have not heard in a while’.

There will be reductions in Public Performance and Live Income as the lockdown impacts the leisure and live entertainment industry. Whilst it is too early to quantify this impact, the Company’s Portfolio of vintage Catalogues have a low weighting to these sectors with Live Income representing approximately 3% and Public Performance 13% of Catalogue revenues.

In addition, whilst advertising budgets are being cut and film releases are being paused, the Company has not seen a decrease in the demand for Song placements and synchronisations.

Hipgnosis’ investment strategy of building a portfolio with a core of vintage proven hit Songs, which have a high exposure to streaming and low exposure to live music, leaves it well positioned in the COVID-19 world. Overall, the Board expects that the income growth from streaming will exceed any lost earnings from Public Performance and Live Income.”

SONG sees a pipeline of over £1bn

“Over the past 20 months, the company has acquired a portfolio comprising 54 catalogues of proven hit Songs. The board is delighted that the performance of these catalogues to date has been ahead of both management’s high expectations and the performance targets set at the time of IPOThe uncorrelated and reliable nature of these assets leaves the company well positioned to outperform during and after the global COVID-19 crisis.As the current crisis has more than ever highlighted the need for investors of uncorrelated and reliable income, the investment proposition’s attractiveness continues to grow. There are significant opportunities for further revenue and NAV growth from the increase in adoption of streaming, from new technologies providing additional monetisation possibilities and from the Active Management of the portfolio by the investment adviser.

The investment adviser continues to see attractive pricing on catalogues of the finest quality and is in active discussions on a pipeline with an acquisition value of over £1bn.”

SONG: Hipgnosis Song says total NAV increased 17.7% while streaming up over pandemic

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