- Interim pay-out of 1.1325p scrapped
- Move prompted by lower royalties
- Shares slide 17% to new historic low
The gloomy mood music at royalty firm Hipgnosis Songs Fund (SONG) shows no sign of letting up with the cancellation of the interim dividend the latest blow to shareholders.
Hipgnosis shares, which had already lost 26% this year, tumbled another 17% to a new all-time low of 61p.
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DIVIDENDS ON HOLD
The fund said it was notified on Friday that its independent valuer Citrin Cooperman had ‘materially’ reduced its forecast for retrospective royalty payments across the industry.
The valuers’ decision was based on the US CRB’s (Copyright Royalty Board) judgement on payments owed to songwriters from 2018 to 2022, and means a writedown of the value of Hipgnosis’s portfolio at the end of September.
Instead of $21.7 million of backdated payments, the fund now expects to receive $9.9 million or less than half the budgeted figure.
As a result, the company proposes cancelling October’s 1.1325p per share interim dividend, which it only announced last month, in order to make sure it stays withing the covenants of its RCF (revolving credit facility), and says any future dividends will be ‘subject to satisfactory conclusion to discussions’ with its lenders.
EVER MORE COMPLICATED
2023 hasn’t been a happy time for Hipgnosis shareholders, despite the promise of the sale of 29 catalogues of song rights for $465 million and a $180 million buyback.
The firm said last month that the board and the investment adviser to the fund believe that over the last 18 months the Hipgnosis share price ‘has not reflected the fundamental value of the company’, and a buyback and repayment of part of its RCF was an important part of addressing the undervaluation.
However, there seems to be little progress in the sale of the catalogues and clearly the firm is edging closer to non-compliance with its covenants if a shortfall of less than $12 million has forced it to cancel the dividend.
Liberum analyst Shonil Chande described the CRB ruling as having been ‘a key tailwind’ to the valuation story, and given the fund’s high exposure to streaming, where the ruling would have the greatest impact, today’s negative news ‘adds another layer of complexity to the continuation vote and vote on the Blackstone deal’.
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