Shot Tower Capital, the valuer Hipgnosis Songs (SONG ) appointed after questioning its half-year results in December, has slashed 26% off the fund’s valuation with net asset value (NAV) per share dropping by a third.

The valuer, which was hired after SONG’s board issued a health warning about the NAV, issued a preliminary report in which it stated nearly two-thirds of SONG’s income comes from ‘passive’ rather than fully controlled royalty rights.

It estimated the portfolio’s fair value at 1 March to be between $1.8bn and $2.06bn.

This falls to $1.74bn and $2bn if $59.9m of contingent catalogue bonuses are deducted and compares to the 30 September fair value of $2.62bn, or $2.55bn with a bonus provision.  

Shares in SONG, which have stood at a wide 54% discount to reflect the uncertainty over their valuation, sank 6.9p, or 10.9%, to a new low of 56.2p.

As a result of the ‘material difference’, the fund’s board warned it would prioritise debt repayment and not reinstate dividends ‘for the foreseeable future’. The interim payout was cancelled in October before the company lost a continuation vote and its board was replaced.

Chair Robert Naylor, the former Round Hill Music Royalty chair who took charge after the SONG shareholder revolt, said the board was making good progress with due diligence work in its strategic review, launched after the vote.

‘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,’ he said.

Shot Tower said SONG’s cash net revenue after reduction for third-party royalties and administration expenses was $121.7m for the 12-month royalty statement to 30 June.

The board said this is consistent with the $119.4m cash figure for the 12 months to 30 September derived by auditor BDO as part of its ‘quality of earnings analysis’.

However, the $1.93bn midpoint of Shot’s valuation reflects a multiple of 15.9 times net royalty income before deducting catalogue bonuses – that means a 26.3% reduction from the half-year results that the board challenged fund manager Hipgnosis Song Management about.

That cuts SONG’s operative NAV at 1 March by 33% to around $1.17 per share compared to the $1.74 reported for 30 September 2023. Based on Friday’s exchange rate, the operative NAV would be 92p per share down from 142.49p.