By Elena Vardon
Hipgnosis Songs Fund shares fell to fresh lows after the group said it won’t restart paying dividends for now after an independent report estimated that the value of the company’s assets is more than a quarter lower than previous calculations.
The London-listed song catalog fund–which owns rights to tracks by Shakira, the Red Hot Chili Peppers and others–decided it would be appropriate to reduce its gearing and use its free cash flow to pay down debt instead of resuming the payment of dividends to shareholders for the foreseeable future, it said on Monday.
Shot Tower Capital–which prepared a preliminary valuation as part of a strategic review launched in October–estimated the fair value market of the company’s portfolio as of March 1 was between $1.80 billion and $2.06 billion, or $1.74 billion and $2.00 billion after deducting contingent catalogue bonuses of $59.9 million, Hipgnosis said. As at Sept. 30, fair value was $2.62 billion, or $2.55 billion after deducting $68.1 million from the catalogue bonus provision. The mid-point represents an around 26% reduction in the valuation, it added.
“We are disclosing the valuation at this time given its material difference to valuations previously disclosed,” Chairman Robert Naylor said. “The Board remains focused on identifying all options to deliver shareholder value,” he added.
The group said that this decreases its operative net asset value per share to $1.17 from $1.74 at the end of September.
Hipgnosis Songs Fund’s board asked for an independent valuation after its Blackstone-backed investment adviser–Hipgnosis Song Management Limited–provided it with a “heavily caveated” opinion after initially declining to give one and repeated requests, it said. It advised investors to treat those figures with caution.
In October, the group withdrew its interim dividend proposal–which it disclosed less than a month before–on the back of significantly lower retroactive royalty payments.
At 1055 GMT, shares were down 7.70 pence, or 12%, to 55.40 pence, their lowest price ever. The stock has lost 36% of its value over the past 12 months.
“Amid all the turmoil around poor levels of corporate governance and stress on its finances, Hipgnosis last year said it would not pay another dividend until April 2024 at the earliest. It’s no wonder the share price has followed the words of David Bowie by ‘sinking into the quicksand’,” AJ Bell investment director Russ Mould said in a market comment.
Investing in music royalties–which are considered to be a lower-risk, dividend-paying and dependable asset class–may no longer seem appealing to shareholders given the recent events and that dividends are no longer on the menu, Mould adds.
Write to Elena Vardon at [email protected]
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