RHM.L Regulatory News (RHM)

13 April 2023

Round Hill Music Royalty Fund Limited

("Round Hill Music" or the "Company")

Second independent valuation report from FTI in line with

Citrin Cooperman's fair value assessment

Round Hill Music (LSE: RHM), which invests in evergreen music catalogues with proven longevity and revenue streams, is pleased to announce it has received a second independent valuation report (the "FTI Report") on its portfolio of music rights from FTI Consulting Inc ("FTI").

The FTI Report affirms the valuation as at 31 December 2022, prepared by the Company's independent valuer, Citrin Cooperman. The FTI Report was commissioned by the Board ahead of the publication of its full year results for the year ended 31 December 2022, which are expected to be published later this month, to provide an additional data point for the market on the fair value of the Company's investments.

On 6 March 2023 the Company announced that, following receipt of an independent valuation from Citrin Cooperman (as at 31 December 2022), its Economic Net Asset Value per Ordinary Share was US$1.28 ("Economic NAV") and its unaudited IFRS NAV per Ordinary Share was US$0.93 ("IFRS NAV"). The Economic NAV included a c.US$43 million increase in the valuation of the Company's portfolio to c.US$603 million (including its equity interest in RH Carlin Holdings LLC ("Carlin interest")). 

The FTI Report provides two valuations. One is based on a transaction using financing with traditional bank debt and one financed through an asset backed securitisation ("ABS") structure. The discount rate that results from the Weighted Average Cost of Capital ("WACC") analysis in the bank debt valuation is 9.25% and the discount rate that results from the WACC analysis of the ABS valuation is 8.25%. This compares to a discount rate of 8.5% used by Citrin Cooperman. FTI applies a low, mid and high range of valuations. In its mid case, FTI forecasts that overall portfolio cash flow will grow by 7%, 6% and 5% in 2023, 2024 and 2025, respectively. The FTI growth rates compare to Citrin Cooperman's base case assumption of 5% for all income types (excluding a 2% assumption for 'Other' income) in 2023, 2024 and 2025, respectively. While FTI assumes a higher discount rate, their elevated growth assumptions largely offset any negative impact. Accordingly, FTI's valuation for the traditional bank debt approach results in an overall variance of just (3)% compared to the Citrin Cooperman valuation.

The results of the FTI Report are set out below and are based on the mid case valuation.

FTI Bank Financing Structure Valuation (as at 31 December 2022):

FTI ABS Financing Structure Valuation (as at 31 December 2022):

FTI's comprehensive valuation methodology is based on a combination of the following:

· Analysis of by-track, by-source of income historical performance data;

· Identification of non-recurring historical royalty collections;

· Analysis of forecasted revenue for new song releases and sync placements;

· Analysis of trends among vintage, genre and territory cohorts;

· Analysis of administrative contract attrition trends, statutory reversions or other potential loss of income events, as necessary; and

· FTI's knowledge of ongoing industry trends, including the impact of recent legislative and/or regulatory developments.

FTI benchmarks to the observed long-term trends for similar music publishing and recorded music catalogues, as well as the broader music industry, and prepares an independent range of valuation indications.

Round Hill Music also provides additional cross-reference of the implied multiples to recent transactions using the Shot Tower M&A multiples database. Shot Tower Capital ("Shot Tower") is an investment banking boutique that provides advisory and capital raising services in the media sector with a specific focus on the music industry, where it has completed more transactions globally than any other investment banking firm.

Shot Tower maintains a database of music publishing catalogue transactions and the average multiple of Net Publisher Share ("NPS") paid in 2022 was 19.4x for catalogues of high quality, iconic copyrights, which are the focus of Round Hill Music's investment strategy. The 19.4x multiple is the raw average including all deals in Shot Tower's database for both iconic and non-iconic copyrights (for every deal greater than US$20 million). This is in line with the implied multiples derived from the valuations provided to the Company by both Citrin Cooperman and FTI.

Commenting on the FTI Report, Josh Gruss, CEO of Round Hill Music LP, the Company's investment manager, said:

"The independent valuation that we have received from FTI Consulting supports our strong view that the Round Hill Music portfolio is significantly undervalued by the market and therefore offers considerable upside potential, as reflected in the organic growth that has been delivered since IPO.

"Round Hill Music LP is a pioneer in music rights investment, having been one of the first to identify the incredible opportunity that music offers almost 15 years ago. Over that time, we have built a passionate in-house team of over 70 people with specialist knowledge and expertise in managing music rights. With its backing, the Round Hill Music collection has been carefully assembled with an eye on iconic music with proven playing power, commercial appeal and the capacity to deliver higher revenue growth through the multiplicity of opportunities across traditional and expanding digital landscapes."

FTI Consulting Inc is a publicly traded business advisory firm with 6,400 employees worldwide that has a deep music specialisation. It performs valuation services for many of the music industry players and is commonly engaged in support of music securitisation transactions to provide independent financial forecasts and valuations for underlying music catalogue assets. In addition to the forecast and valuation services, FTI is also asked to provide additional support services to the underwriter, ratings agency and/or investors, as required.

FOR FURTHER INFORMATION

 About Round Hill Music Royalty Fund Limited

Round Hill Music Royalty Fund invests in high quality, evergreen music catalogues that have proven longevity and revenue streams, with the aim of providing investors with an attractive level of regular and growing income and capital returns, underpinned by the positive structural drivers of the global music industry.

The portfolio is diversified by income stream and music genre, with value created through the proactive and careful management and commercialisation of the repertoire through synchronisation (placement in films, television series and brand campaigns); licensing; data cleaning; and distribution (including across platforms such as Amazon Music, Apple Music, Deezer, and Spotify). 

Its 51 catalogues, totalling over 120,000 songs, include music performed by artists such as Alice in Chains, Bonnie Tyler, Bruno Mars, Céline Dion, Lady A, Louis Armstrong, The Offspring, The Supremes, Whitesnake and Wilson Pickett.

The portfolio of rights includes copyright interests in a musical composition or song (which can be the writer's share, publisher's share and/or performance rights), the rights to the recording of a musical composition or song (the master recording rights), as well as music rights and assets that meet the Company's investment strategy and objectives. The Company is a non-cellular Guernsey company.

A playlist of RHM's top 50 earners can be listened to on Spotify here. We recommend it served loud.

About Round Hill Music LP (the Investment Manager)

Founded in 2010, Round Hill Music LP is a fully integrated owner and operator of music copyright properties. It currently manages 150+ catalogues, totalling 330,000+ songs with a combined value of circa US$1.2 billion.

With over 70 employees located in the major music and entertainment markets of Nashville, New York, Los Angeles and London, Round Hill Music LP has an experienced management and investment team with an established reputation and extensive expertise in the music and finance industries.