It’s truthful to recommend that Hipgnosis Songs Fund (HSF), the UK-listed entity that owns tune rights (and earnings streams) price over $2 billion, has been extra harshly scrutinized by one funding financial institution than another these previous couple of years.
US-headquartered Stifel hasn’t been shy in expressing its pessimism over HSF ever for the reason that monetary agency downgraded its view of the music firm’s inventory in early 2021 – by way of a report which led the Monetary Occasions to surmise: “Stifel is nervous that Hipgnosis Songs Fund is slipping out of tune.”
Since then, Stifel analysts have appeared in monetary media various occasions to name into query, amongst different issues, HSF’s money circulation profile, its acknowledged valuation, and its resolution to purchase again inventory final yr utilizing a debt increase.
Now, although, the narrative has modified just a little.
Stifel has immediately (January 19) issued a report through which it waves a not-insignificant quantity of optimism in Hipgnosis Songs Fund’s course – and even encourages traders to contemplate shopping for inventory within the firm.
The HSF-themed report, titled ‘Revenues present indicators of stability: Time to dip your toe’, sees Stifel improve Hipgnosis Songs Fund inventory to ‘Optimistic’.
The report means that Hipgnosis’ just lately agreed Revolving Credit score Facility – which introduced the agency an extra ≈$100 million in spending energy in late 2022, and was secured at a set rate of interest – seems to be like a sensible transfer by Merck Mercuriadis‘ firm.
The elevated measurement of that RCF, mixed with the fixing of curiosity prices on the debt, plus the proactive “hedging [of] the price of dividends by means of the This fall sterling turmoil”, says Stifel, implies that HSF’s “near-term dividend funds are safe”.
Stifel notes “indicators of income development” and stabilization at Hipgnosis, as mirrored within the music agency’s newest monetary figures protecting the six months to finish of September 2022.
Stifel attracts specific consideration to enchancment in HSF’s ‘pro-forma income’ or PFAR (see under).
When these improved revenues are mixed with the expectation that normal rates of interest will peak (after which fall) this yr, Stifel suggests market sentiment could now enhance on HSF’s inventory (i.e. uplifting its share value).
Stifel does proceed to query HSF’s acknowledged NAV (Web Asset Worth), noting its perception that if this have been to fall by 10%, Hipgnosis wouldn’t have sufficient free funds left from its current RCF to cowl dividend funds, that means that “strain on [Hipgnosis finding the money for] dividends may happen as working capital stays tight”.
Crucially although, Stifel means that this consequence “seems unlikely at this stage”.
In encouraging traders to contemplate shopping for Hipgnosis Songs Fund inventory, Stifel says that “whereas draw back dangers stay, they’ve subsided”. Stifel now expects {that a} share value of GBP 1.00 to GBP 1.10 for HSF might be justified. (HSF’s present share value stands at GBP £0.8677 on the London Inventory Change, down from a peak of £1.292 in November 2021.)
Hipgnosis Songs Fund is considered one of two capital funds which are deployed by an funding supervisor – Hipgnosis Tune Administration – to amass music rights.
The second of these funds is a personal car funded by Blackstone: Hipgnosis Songs Capital (HSC).
Following the acquisition of catalogs created by music icons similar to Leonard Cohen and Justin Timberlake, studies in direction of the top of final yr prompt that HSC was getting near buying a tune catalog from Justin Bieber for a value within the area of $200 million.Music Enterprise Worldwide
