Hipgnosis, the royalties investment fund that offers investors the chance to make money from songs by artists from Beyoncé to Blondie, has cut the value of its music portfolio by more than a quarter in the latest blow for the company.
The once high-flying FTSE 250 business, which earns royalties each time one of the thousands of songs to which it owns the rights is played, updated the market on Monday about its continuing strategic review. It also said it would suspend dividends for the foreseeable future and use free cash to pay down debt.
Hipgnosis shares, which peaked at 129p in late 2021, fell 11{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} to 56p in early trading.
The company was founded in 2018 by Merck Mercuriadis, a former manager of acts including Elton John, Iron Maiden, Guns N’ Roses and Beyoncé. Hipgnosis has bought catalogues from artists like Neil Young and Red Hot Chili Peppers in an effort to cash in on what it viewed as undervalued assets in the streaming era.
However, in recent months it has come under pressure amid valuation concerns and a shareholder revolt against a proposed $440m (£347m) catalogue sale deal.
Monday’s statement on the reduction in the fair value of the company’s portfolio followed a report by Shot Tower Capital, which was appointed by the Hipgnosis board to provide an independent valuation of the company’s assets.
Shot Tower reviewed the portfolio on a bottom-up basis, analysing the royalty statement data of each of the company’s catalogues and looking at areas such as copyright interests. It gave a midpoint valuation of $1.93bn (£1.52bn) – about 26{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} lower than the valuation of September 2023.
Shot Tower will provide further due diligence findings to the board by 25 March and Hipgnosis expects to provide a further update by 29 March. The company said on Monday after the fresh valuation that it would use its free cashflow to pay down debt and would not recommence dividends for the foreseeable future.
Robert Naylor, the chair of Hipgnosis Songs Fund, said the board remained focused on identifying all options to unlock shareholder value.
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The majority of shareholders voted at an extraordinary general meeting in October last year against Hipgnosis securing another five-year mandate to run as an investment trust. Investors were also unhappy with plans to sell a fifth of the catalogue of 65,000 songs for $440m at a steep discount to book value.
In a further sign of the company’s need for cash as it tries to meet its debt obligations, it announced in December that it had sold 20,000 unspecified “non-core” songs for $23.1m, a 14{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} discount on their valuation in September.
