Hipgnosis shares drop to new low after its portfolio value is cut by over 25%

Hipgnosis Songs Fund Shares fell to a record low on Monday after the music investor slashed the value of his portfolio by more than a quarter.

The struggling company, which owns the back catalogs of artists including Shakira and Chris Cornell, appointed investment banking firm Shot Tower Capital in December to conduct due diligence on its assets.

Shot Tower estimated that the fair market value of the group’s portfolio would be between $1.8 billion and $2.06 billion, or between $1.7 billion and $2 billion after bonuses to musicians are deducted.

The portfolio’s median valuation of $1.93 billion represents a drop of about 26 percent from the $2.62 billion HSF considered its catalogs to be worth in September 2023.

Due to the significant write-down, HSF has no intention of restarting dividend payments “in the foreseeable future”, having suspended them in November last year due to financial pressures.

Instead, the London-based company will use its free cash flow to reduce debt, which amounted to $674 million last September.

Following this latest announcement, the fund’s share price plunged 13.6 per cent to 54.5 pence, more than half off its peak of 129 pence in November 2021.

HSF has seen significant turmoil for at least a year, as rising interest rates have depressed the attractiveness of music royalties compared to other asset classes such as bonds.

The company has also racked up huge debts by purchasing dozens of back catalogues, including those of Blondie, the Red Hot Chili Peppers and Fleetwood Mac’s Christine McVie and Lindsey Buckingham.

Last October, HSF launched a strategic review to determine how to increase value for investors, including a review of its management structure.

That same month, shareholders voted against the proposed £372m sale of 29 music catalogs to funds backed by asset manager Blackstone and against giving HSF a five-year mandate to operate as a investment trust.

Shortly afterwards, HSF revamped its board, bringing in two former directors of the Round Hill Music publishing group, Robert Naylor and Francis Keeling, as chairman and non-executive director respectively.

Naylor said on Monday: ‘The newly formed board is making good progress with the due diligence work that will underpin its strategic review.

‘We are disclosing the valuation at this time given its material difference to previously disclosed valuations. The board will provide more details on this when due diligence is completed.’

Shot Tower has told HSF bosses that it intends to present the full results of its due diligence to them by March 25.

HSF was founded in 2018 by Chic guitarist Nile Rodgers and Merck Mercuriadis, who managed some of the world’s most popular musicians, from Iron Maiden to Guns ‘N’ Roses and Sir Elton John.

Mercuriadis recently resigned as CEO of HSF’s investment advisor, Hipgnosis Songs Capital, to become president of Hipgnosis Songs Management, the manager of HSF’s assets.

HSF and HSM have endured a strained relationship, with the former’s bosses warning that a call option held by the latter, which gives it the right to buy HSF’s portfolio of songs, is hurting the value of the portfolio.

Russ Mould, investment director at AJ Bell, said: “The chaos around the management of the trust has been a big turn-off for investors, and many may no longer consider music royalties to be the reliable asset class and of lower risk originally suggested. .

‘Hipgnosis have had their 15 minutes of fame and have now been cast aside as a one-hit wonder boyband. A comeback story could be a long way off, if one exists.