Hipgnosis cuts value of music portfolio by over a quarter

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Hipgnosis Songs Fund has slashed the value of its music portfolio by more than a quarter and said it would need to use free cash to pay down debt, in the latest blow to investors in the UK-listed music rights investment company.

The company’s board, which was revamped last year to oversee a strategic review that could lead to the sale of the group, had asked a new adviser to value a music rights portfolio that includes music by artists including Red Hot Chili Peppers and Shakira.

Shot Tower Capital, which carried out the work, estimates a midpoint value of the portfolio of $1.9bn, or a reduction of 26.3 per cent compared with the valuation at September 30 2023.

Because of the cut to its net asset value, the board said it would need to reduce debt using the company’s free cash flow. It said it did not intend to restart paying dividends “for the foreseeable future”.

Shares in Hipgnosis have halved over the past two years as investors started to question the value of its underlying music assets, and raised concerns over the governance and debt levels of the group.

In early trading on Monday, shares fell by another 10 per cent, trading at about 56p. This means that the company is still trading at a sizeable discount to even the new, reduced valuation. The latest estimate of the value of its music rights has given the company an NAV per share of 92p.

Hipgnosis chair Robert Naylor said the recently constituted board “remains focused on identifying all options to deliver shareholder value”.

Hipgnosis was founded by music executive Merck Mercuriadis in 2018 to turn music rights into a mainstream asset class, using the royalties from streaming, radio play and performances to provide income for investors.

However, the attractiveness of this income has been hit by the rise in interest rates, which has pushed up the “discount rate” used to…