Investec reiterates 'Buy' recommendation for Hipgnosis Songs fund

investmentweek.co.uk:

The London-listed investment trust, which launched in 2018, is currently trading at a 54.5% discount, according to data from the Association of Investment Companies.

The move follows the announcement on Thursday (13 July) that the fund was considering strategic options, which may include the potential strategic sale of catalogues of songs, to narrow its deep discount to NAV.

The London-listed investment trust, which launched in 2018, is currently trading at a 54.5% discount, according to data from the Association of Investment Companies. 

In its results for the financial year to 31 March, the fund reported its operative NAV, which reflects the fair value of the music catalogues as per an independent valuation, was $1.9153, up 3.6% over the year.

Hipgnosis Songs considers strategic options ahead of September continuation vote

This was primarily driven by a 4% increase in the fair value of the portfolio as the valuer left the discount rate unchanged at 8.5%. NAV total returns in US dollar terms were 7%, including dividends of $0.0631 paid during the financial year, which were covered 1.08x by levered free cash flow.

Analysts Alan Brierley and Ben Newell said FY23 headline numbers read well, including double-digit revenue growth underpinned by strong streaming growth and a significant recovery in performance income «which had been suppressed since the Covid lockdowns». 

However, they noted there were a couple of «notable surprises in the results». These included the disclosure of potential tax charges arising on asset sales ($245m) and the additional catalogue bonus provision of $44m.

«The company is approaching its scheduled five-year continuation vote and this tax issue raises further questions about the long-term