Hipgnosis has ‘compelling value’, says JP Morgan as SONG dives

After two less than positive assessments of the Hipgnosis Songs Fund’s long-term prospects came under the media spotlight earlier this month, the entity’s (LON:SONG) share price hit a 2022 low. But according to a JP Morgan analysis, SONG “still offers compelling value.”

Speak FinancialTimes‘ critical accounts of the position of Hipgnosis Songs Fund, the London-based song rights investor – which, until the suspension of new transactions in August 2021, had acquired all manner of high-profile catalogs – has “burnt its funds and is unable to raise more because its stock price has fallen.

Additionally, the outlet’s latest look at Hipgnosis’ operations, published about a week ago, relayed that the company’s sole catalog evaluator has so far “resisted” revamping its process. valuation to reflect rising interest rates.

If this appraiser “started using higher interest rates as part of its calculations – reflecting rising real rates – the valuation of tens of thousands of songs would fall, which could wreak havoc for investors who have used debt for purchases, FT declared.

In the aftermath of the outages, Hipgnosis stock fell to a 2022 low of 98.50 GBX – representing a decline of more than 25% from its value at the start of 2022 – before bouncing back to around 105. GBX and close today at 100.63 GBX.

Despite the decline, which prevents the issuance of new shares, as mentioned, JP Morgan expressed a largely positive view of Hipgnosis, in particular because it is “optimistic about” the “income” of the song fund for the year to come.

Explaining the position and its overweight rating, JP Morgan cited Hipgnosis’ recently announced plans to continue paying a dividend, the planned refinancing of its credit facility next month, the increase in royalty rates and the “continued growth , with price increases likely to come”.

“The main negatives are higher interest costs and non-cash income, although both of these are in our estimates, and we hope the refi will allow us to improve our estimates,” JP Morgan wrote. “Given the long-term growth potential of the asset class and the (in our view) superior quality of the portfolio relative to RHM, we believe SONG offers attractive value and reiterate our overweight recommendation.”

It is worth mentioning in conclusion that HSF’s Annual General Meeting, held on Wednesday, also resulted in the adoption of a share buyback resolution that will specifically allow “market acquisitions…of its [HSF’s] ordinary shares either for retention as treasury shares, to the extent permitted by law, or for cancellation.

A separate resolution (which also passed with overwhelming support) allows Hipgnosis directors “to allot and issue or make allotment and issue offers or agreements, grant rights to subscribe or convert securities into ordinary shares… in cash up to the total number of 60,560,714 ordinary shares.

Finally, Amy Thomson has officially resigned as “Catalog Director” of Hipgnosis, indicating in a statement that she will remain a consultant while beginning full-time work on its new catalog management platform.

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