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Hipgnosis Songs spends £214m in royalties ‘land grab’

15 January 2020

Alternative income fund deploys most of October's fund raising in just three months, making a further share issue likely, say analysts.

Hipgnosis Songs (SONG) looks set to return to investors for more money after the alternative income fund deployed its £231m C-share issue from October in just three months.

The Guernsey-based investment company gave itself six months to invest the proceeds in song catalogues but, in what broker Numis Securities called a ‘land grab’, has got through £214m, or 95% of the money, in just 12 weeks.

A spate of acquisitions has seen Hipgnosis hoover up the rights to 3,741 songs since the fund raising. That’s 312 songs and £17.8m a week. Highlights of the 13 acquisitions include 48 songs bought from the Kaiser Chiefs and this month, 157 songs from Tom DeLonge, former front man of Blink-182.

As a result of this frenetic activity, Hipgnosis C-shares (SONC) will convert into ordinary shares next month, lifting the market value of the fund to £664m just a year-and-a-half after launch.

Founder Merck Mercuriadis has previously spoken to Investment Trust Insider of his ambition to grow Hipgnosis to £2bn and give it the clout to command higher payments for songwriters.

Mercuriadis, a former manager of Elton John, Guns N’ Roses and Beyonce, recently told the Financial Times he wanted to buy a US-based team of royalty managers to scale up his operations.

The former Sanctuary boss has impressed fund managers, such as CCLA, Schroders, Newton and Investec. Even though most City investors have probably not heard of many of the artists or writers whose songs Hipgnosis has bought, they have snapped up the shares like they were hot tickets for their favourite bands from their youth.

Consequently, SONG shares have traded at a steady premium, making a further fund raising likely.

The shares currently stand on a 10% premium over their estimated net asset value (NAV) under IFRS accounting rules, and a 2% premium over the 'operative' NAV which is higher as it excludes the cost of debt.

At 109p at Monday's close the ordinary shares offered a dividend yield of 4.6%.

Analysts have been more cautious, however, complaining of a lack of detail on valuations and on which songs are generating the returns.

However, disclosure improved at the half-year results in December with Hipgnosis providing analysts with the revenues yielded by each song.

According to Numis, the of earnings multiple used in the recently transactions rose slightly to 12.99 times annual net income up from 12.84 times previously.

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