What led to Hipgnosis Songs Fund Ltd making acquisitions of several music catalogues?

Hipgnosis Songs Fund Ltd is the FTSE 250 listed investment company, which is engaged in providing investors with extensive exposure to songs and intellectual properties rights associated with the songs. The Company had become a constituent of the FTSE 250 Index in March 2020. Based on its 1-year performance, shares of SONG have generated a return of about 12.84%.

Business Model

The Company makes its investments in songs and intellectual property rights. The Company had raised total £1.05 billion since 11 July 2018 through the IPO and following issues during April 2019, August 2019, October 2019, July 2020 and September 2020. The Company had acquired a total of 117 music catalogues for  £1.18 billion, representing a multiple of approximately 14.76x of annual historical earnings.

(Source: Company result)

The Company had owned four out of Top 5 songs of the decade on Billboard. The Company had acquired 63 new catalogues during the six-month period ended on 30 September 2020. Some of the popular songs of all time include–

• 50 Cent's "In Da Club".
• The B-52's "Love Shack".
• Fleetwod Mac's "Go Your Own Way".
• Steve Winwood's "Higher Love".
• Blondie's "Heart Of Glass".
• Rick James' "Super Freak" and "You Can't Touch This".
• 10cc's "I'm Not In Love".
• Mariah Carey's "All I Want For Christmas Is You".
• The Spencer Davis Group's "Gimme Some Lovin".
• Enrique Iglesias' "Hero".

Recent News

On 06 January 2021, the Company had acquired 50% of Neil Young's entire song catalogue comprising 1,180 songs and their worldwide copyrights & income.

On 05 January 2021, the Company had acquired a catalogue of Lindsey Buckingham who is popularly known as the lead guitarist and vocalist of Fleetwood Mac. 

On 04 January 2021, the Company had announced the acquisition of music catalogue of Jimmy Iovine who was one of the highly influential music record producers of 70’s and 80’s era and were regarded as one of the most important music entrepreneurs of all time. The Company had acquired 100% of his catalogue including 259 songs and the royalties for ‘8 mile’ and ‘Get Rich or Die Trying’.

Jimmy Iovine was the producer for many albums composed by popular artists like John Lennon, Bruce Springsteen, Patti Smith, Stevie Nicks, Dire Straits, U2, Simple Minds, The Pretenders etc.  Jimmy Iovine gained popularity after working as an engineer with John Lennon.

On 14 December 2020, the Company had updated that Mariah Carey's 'All I Want For Christmas Is You' had reached number 1 spot on the UK Official Singles Chart Top 100. The song was streamed for more than 10.8 million times in the seven days and became the most-streamed song in a week of 2020. The Company had acquired this song on 30 September 2020 as a part of the catalogue of Walter Afanasieff.

Financial Highlights (for the six-months period ended on 30 September 2020 as reported on 04 December 2020)

(Source: Company result)

• The net operating income of the Company had surged by almost 93% to £44.8 million during H1 FY21 ended on 30 September 2020 from £23.2 million achieved in the equivalent period of the prior year due to its increased scale.
• The profit after tax was slightly declined to £10.25 million during H1 FY21 compared to £10.72 million for the equivalent period of the previous year due to higher acquisition cost of HSG.
• The basic earnings per share went down to 1.61 pence during H1 FY21 due to the acquisition of HSG and the costs associated with the two share issues in the period.
• Regarding its financial position, the Company had a cash balance of £203.7 million as of 30 September 2020.
• The Board announced a surge of 5% in final dividend for FY21 to 5.25 pence per share. The Company had already declared a dividend of 2.56 pence per share in two cycles of 1.25 pence per share for the period from 01 April 2020 to 30 June 2020 and 1.3125 pence per share for the period from 01 July 2020 to 30 September 2020.

(Source: Company result)

• The Company had reported an increase of 7.4% in operative NAV per ordinary share to 125.35 pence as of 30 September 2020.

Operational Highlights (as on 04 December 2020)

• The Company had acquired Hipgnosis Songs Group (HSG) previously named as Big Deal Music Group during the period.
• The Company had also acquired Kobalt Fund 1 consisting an impressive portfolio of 42 music catalogues and over 33,000 songs.
• The Company had raised £426.4 million through secondary placings of C Shares in July 2020 and Ordinary Shares in September 2020.
• The Company’s portfolio represented almost 45% of songs ageing between 10 years and 58 years as of 30 September 2020. 

Share Price Performance Analysis of Hipgnosis Songs Fund Ltd 

(Source: Refinitiv, chart created by Kalkine group)

Shares of Hipgnosis Songs Fund Ltd were trading at GBX 123.27 and were up by close to 0.22% against the previous closing price as on 06 January 2021, (before the market close at 08:40 AM GMT). SONG's 52-week High and Low were GBX 126.00 and GBX 85.00, respectively. Hipgnosis Songs Fund Ltd had a market capitalization of around £1.25 billion.

Business Outlook

The music industry plays a prominent role in shaping up humans behaviour at times. The Company is expecting a resilient financial performance despite elevated uncertainty revolving around music live performances during 2021. The Company has shifted its focus towards streaming services and aiming to earn continued growth in its royalty income as more people are prone to music and prefer to listen to it through online streaming services. The Company has an impressive catalogue acquisitions pipeline and is willing to do more fundraising activities to diversify its existing portfolio with subject to certain market conditions.