Music publishing’s popularity with investors makes Hipgnosis Songs Fund the “it” company in the music business right now. Guernsey-incorporated Hipgnosis is a pure-play music option for investors interested in the asset class — no merchandise, no concert promotion, just music publishing royalties with a touch of recorded music income.
Publishing royalties remain strong while some segments such as live music get pummeled by the pandemic. Global streaming growth more than compensates for the declines in performance royalties from radio and live performances. A noticeable jump in Hipgnosis’s mid-year financials for April 1 to September — all year over year — were boosted by the purchase of 63 catalogs and 44,500 songs, many from acquisitions of music publisher Big Deal Music in September. Here are the top takeaways:
- Revenue increased 121% to £50 million ($67.1 million).
- Net operating income increased 92.9% to £44.8 million ($60.2 million)
- Net profit decreased 4.4% to £10.3 million ($13.8 million)
- Mechanical income rose 242.7% to £4.8 million ($6.4 million)
- Synchronization income increased 240.1% to £6.9 million ($9.3 million)
- Streaming revenue grew 74.2% to £8.1 million ($10.9 million)
The standard financial metrics don’t fit Hipgnosis’s business model. The firm is a closed-end fund that raises money through public offerings with the explicit intent to invest the equity into publishing catalogs. For example, £190 million of equity raised on September 24 will be used to purchase 42 catalogs. Because the total equity increased 22.1% from £860 to £1.05 billion, the value of catalogs will grow the same amount. So, another way to gauge Hipgnosis’s performance is through the return on the value of its catalog. Here’s a rundown:
- Net asset value of £1.27 billion ($1.7 billion) or 125.35 pence per share. (NAV = assets without amortization less liabilities.)
- The NAV per ordinary share rose 11.6% from 116.73 pence to 125.35 pence Sept. 30.
- About three-quarters of the increases in NAV came from a change in the discount rate used to value catalogs from 9% to 8.5%.
- Total dividends paid in the first half of the financial year totalled 2.5 pence per ordinary share.
- In the last period, Hipgnosis raised its targeted dividend per ordinary share from 5 to 5.5 pence.
Hipgnosis has a positive outlook for the rest of the year. It believes the pandemic’s negative effect on public performance income “is expected to be short term with a pick-up in earnings during 2021,” it states in the earnings release. Higher sync license income from television streaming services was more than enough to cover the shortfall in sync income caused by the slowdown in film production.
Finally, the earnings report mentioned two acquisitions after September 30 that were not previously announced:
- 100% interest in Sacha Skarbek’s publishing catalog and writer’s share of performance income. Two notable Skarbek songs are the James Blunt hit “You’re Beautiful” and Miley Cyrus’s “Wrecking Ball.”
- 100% of Eric Stewart’s writer’s share of performance and neighboring rights income. Stewart was a member of Wayne Fontana and the Mindbenders (“Since You’ve Been Gone”) and 10cc (“I’m Not In Love”) and co-wrote songs with Paul McCartney.