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(Sharecast News) - Hipgnosis Songs Fund updated the market on ongoing strategic review on Monday, reporting a notable reduction in the company's fair value after a detailed report from Shot Tower Capital.
At its interim results for the six months ended 30 September, Hipgnosis said a preliminary valuation report prepared by Shot Tower Capital had indicated disparities between market data and the fair value of the company's assets.
The FTSE 250 company said at the time that, in seeking clarity on the matter, it consulted the investment advisor Hipgnosis Song Management, majority-owned by Blackstone-managed funds.
It said that, initially hesitant to offer an opinion, the advisor eventually provided a cautious assessment, and as a result, the board had advised investors to exercise prudence in relying on fair value and operative net asset value.
To independently evaluate the company's assets, the board appointed Shot Tower as lead advisor, which scrutinised Hipgnosis' portfolio, conducting a thorough bottom-up valuation analysis of each catalogue based on various factors such as copyright interests, revenue streams, vintage stability, and control rights.
The company said the preliminary valuation report provided by Shot Tower as of 1 March estimated the fair market value of the company's portfolio to be within the range of $1.8bn to $2.06bn.
Adjusting for contingent catalogue bonuses, the valuation stood between $1.74bn and $2bn.
Compared to the previous fair value as of 30 September 2023, the Shot Tower valuation reflected a notable reduction.
Additionally, Shot Tower reported the firm's cash net revenue for the 12 months ended 30 June to be $121.7m, consistent with BDO's analysis for the period ended 30 September.
Based on the Shot Tower valuation, the company said its operative net asset value declined to about $1.17 per share, significantly lower than the last reported operative net asset value of $1.7392 per ordinary share.
Translating to sterling, that equated to around 92.08p per share.
The pro-forma operative net asset value per share excluded potential corporation tax charges on asset disposal.
As a result, in light of the decreased operative net asset value, the board said it planned to reduce gearing and use free cash flow to retire debt, suspending dividends for the foreseeable future.
Shot Tower planned to present its final due diligence findings to the board by 25 March, after which the firm's directors aimed to provide a comprehensive update on Shot Tower's due diligence by 29 March.
"The newly constituted board is making good progress with the due diligence work that will underpin its strategic review," said chairman Robert Naylor.
"We are disclosing the valuation at this time given its material difference to valuations previously disclosed.
"The board will provide further detail on this when the due diligence is complete.
"The board remains focused on identifying all options to deliver shareholder value."
At 0928 GMT, shares in Hipgnosis Songs Fund were down 10.24% at 56.64p.
Reporting by Josh White for Sharecast.com.
