Hipgnosis Songs Fund Slashes Valuation by Over 26% as Share Prices Continue to Sink

Hipgnosis Songs Fund slashes valuation
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Hipgnosis Songs Fund slashes valuation
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Photo Credit: Hipgnosis Songs Fund

Hipgnosis Songs Fund has slashed its music portfolio valuation by over 26%, saying it would need to use free cash to pay down its debt as share prices continue to sink.

The latest blow to investors in UK music rights investment company Hipgnosis Songs Fund sees the company slashing the value of its music portfolio by over a quarter, saying it would need to use free cash to pay down its debt.

The company’s board, overhauled just last year to accommodate a strategic review that could lead to the group’s sale, requested a new adviser to value its music rights portfolio, including music by artists like Shakira and Red Hot Chili Peppers. Shot Tower Capital estimated a “midpoint value” of the portfolio of $1.9 billion — a reduction of 26.3% compared with the valuation at the end of September last year.

Shot Tower has estimated the fair market value of the portfolio at anywhere between $1.8 billion and $2.06 billion — or between $1.74 billion and $2 billion after deducting bonuses for artists. That compares with the September 30, 2023 valuation of $2.62 billion, or $2.55 billion after bonuses.

As a result of the decrease in its net asset value, the board said it would need to use the company’s free cash flow to reduce its debt, and did not intend to restart paying dividends “for the foreseeable future.” Hipgnosis chair Robert Naylor said the new board “remains focused on identifying all options to deliver shareholder value.”

On Monday, March 4, shares fell by another 10%, meaning the company is still trading at a significant discount even at its reduced valuation. Hipgnosis shares have halved in the last two years as investors questioned the value of its music assets, as well as raising concerns over the leadership and debt held by the group.

Hipgnosis was founded by music exec Merck Mercuriadis in 2018, intending to turn music rights into a mainstream asset class using royalties from performances, streaming, and radio play to provide income for investors. But that income has been increasingly hit by rising interest rates, pushing up the “discount rate” used to calculate asset value.