9 Jun 2023 10:40
London, UK, 9 June 2023
Edison issues review on Round Hill Music Royalty Fund (RHM)
Round Hill Music Royalty Fund's (RHMRF's) Q123 trading update showed a strong revenue performance building on the good FY22 results. Combined net publishers' share and net label share was up 91% over Q122, a gain of 20% on a like-for-like basis. RHMRF's economic end FY22 NAV per share had increased 13% over the prior year to US$1.27, with revenue up 32%, reflecting the high quality of the catalogue and the added value from active management of portfolio assets. This is despite a market over-shadowed by a backdrop of rising interest rates and constrained household budgets. We view the size of the discount to NAV as overstated.
RHMRF showed an 18% NAV uplift in 2022 in total return terms, ahead of broad equity markets and its direct peer. The portfolio is valued using an 8.5% discount rate, still reasonably conservative despite rising interest rates and in line with its direct peer. The portfolio valuation has been recently corroborated by a second independent valuation (from FTI Consulting), giving additional confidence. Despite this, the discount to last reported NAV has widened significantly to 37.8% (from 5% at end-2021), broadly in line with its peer. The 'C' share conversion in May 2022 reduced dividend cover, which nevertheless improved to 0.98x in FY22 from 0.8x in H122. RHMRF anticipates the dividend to be fully covered in FY24, while in FY23 cover may be below 1.0x due to higher interest expenses amid rising interest rates.
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