Hipgnosis Songs FundLON: SONG) is reportedly considering selling “less attractive” catalogs to boost the share price and allay investor concerns.
The Word of Hipgnosis Songs Fund’s alleged catalog sales plans came to light in a recent report in the Financial Times, which published several articles last year on the operational status of the Merck Mercuriadis-led company. Not to be confused with Hipgnosis Song Management — the exchange-traded fund’s Blackstone-backed “investment adviser” — HSF has been unable to raise new capital through equity offerings or in return raise additional catalogs for some time.
That’s because the company’s stock trades at a significant discount to the value of its own music stocks — at least according to the much-discussed valuation made by a “catalog appraiser.” Coupled with high levels of debt, this has prevented HSF from winning new business for a while.
Of course, though, the Hipgnosis Songs Fund — which will release its annual earnings report tomorrow — scooped up every catalog it could before hitting the snags of posting a loss of more than $1 billion in fiscal 2021 alone and signing deals with Barry Manilow and Jimmy signed Iovine and Shakira to name a few.
The company also bought back a significant number of shares in 2022, and it is worth noting that some analysts have expressed relatively optimistic views on HSF’s positioning and the way forward. Still, as mentioned earlier, some investors are reportedly pushing for select asset sales to fuel further share buybacks.
According to the FT, “several top investors” want HSF to “sell non-core assets” – with a professional associated with an investment firm that owns 4.9 percent of the Hipgnosis Songs Fund urging managers to do so rather directly , “to dispose of those assets”. less attractive catalogs in the portfolio.’”
Although this individual chose not to indicate which catalogs he felt should be sold, he would be “‘disappointed if they were to sell the family silver to buy stock.'”
In September 2020, Hipgnosis acquired Big Deal Music Group – and the publisher’s 4,400-track catalog in areas that need trimming (without sacrificing extremely valuable inventory) if executives decide to sell. Additionally, November 2020 brought a multifaceted $323 million investment and 42 catalogs for Hipgnosis, whose executives have spoken to at least one potential bidder about a potential sell-off, according to FT.
Needless to say, however, there are questions about this proposed action plan — particularly as to the exact price that Hipgnosis’ “less attractive” IP would fetch against a backdrop of rising interest rates and related economic factors.
Additionally, another investor, this time associated with a company that owns a 6.2 percent stake in HSF, addressed the potential pitfalls of splitting up the fund’s shares, saying he would “prefer if they go ahead and the Grow earnings eventually.” Valuation should reflect portfolio performance.’”