RE: Neil Young4 Feb 2022 18:02
Analysts at JPMorgan Cazenove, broker to Hipgnosis Songs (SONG), have rejected the notion the music royalties fund faces a big financial hit from Neil Young’s withdrawal from Spotify last week, saying its shares are a ‘buying opportunity’ as they trade 9% below asset value.
This week analysts at Stifel estimated SONG could lose $7.5m (£5.5m), or 6% of its annual income, from its 50% stake in Young’s rights, now songs like Rockin’ in the Free World, Heart of Gold and Harvest Moon are no longer available on Spotify, the world’s biggest music streaming platform.
JPMorgan Cazenove’s Christopher Brown and Adam Kelly rejected this yesterday saying the impact would be a fraction of Stifel’s estimate, based on their analysis of figures from music industry magazine Billboard.
‘Our initial back-of-the-envelope estimates of 0.6% to 0.9% of annual income is supported by Billboard estimates of Young’s total annual revenue from Spotify of $754,000,’ they said.
Halving this implied an annual hit of just $377,000 or just 0.26% of their revenue estimate for SONG.
Even this could be an overestimate, said the analysts, as Billboard had reported an increase in consumption of Young’s music from the publicity generated by his opposing Spotify’s hosting an anti-vaccine podcast of Joe Rogan. His higher profile could offset any loss from Spotify, the analysts suggested.
On the issue raised by Stifel that Hipgnosis’ 50% stake in Young’s royalties had not given the fund any control, the analysts said this was clearly deliberate as Young was ‘uncompromising’ about how his music is used. They said this would have been reflected in the price SONG paid ($40-$50m according to the Wall Street Journal) and the contract it signed with the singer and songwriter.
In a further plug for the corporate client, they added: ‘However, even where SONG has full copyright control and owns 100%, it has built its reputation on being sensitive to how the music is used… and this is why artists are happy to partner with Hipgnosis even if it may not offer the highest price.’
Although SONG shares have not plunged by a third in the way Spotify’s stock has done this year - driven down by fears of slowing growth and the row over Rogan - the Hipgnosis fund has shed over 2% in the past week and is down 7% this year reaching 115.8p at Thursday’s close.
Commenting yesterday, the JPMorgan Cazenove duo said their latest estimate for SONG’s net asset value was 127.3p per share, putting them at a discount of 9.2%. ‘This is a substantial discount to Round Hill Music (RHM) which is trading on an estimated discount of 2.6%,’ the analysts said.
‘In our view, the rating of SONG is unjustified based on the quality of the two portfolios. To an extent, it is the result of concern about the financial impact from Neil Young, which is, in our view, totally overdone. Thus we see current weakness as a buying opportunity,’ they added, reiterating their ‘overweight’ recommendation.
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