Hipgnosis Songs Share Discussion Threads

[chopp1] 20/12/2023 16:14

Too many amateurs on here who have probably never done a company valuation in their lives. Go back to your armchair!

[riverman77] 20/12/2023 12:32

Discount rate of 12% is not particularly steep given you can get about 5.5% on high quality corporate bonds and the amount of risk here. Something like UKW uses a discount rate of about 10% and I know which one I'd prefer! Also don't agree that the cashflows are predictable - possibly for the older catalogues, but not the newer catalogues which make up around 40% of the portfolio - who knows what cashflows these will deliver over the next 10 years and if anyone will even be listening to them then?

[chopp1] 20/12/2023 09:57

That is one of the steepest discount rates I have seen being currently used by investment trusts. And when I say future cash flows, I mean net cash inflow, which presumably the independent valuer is using. Trust me. I know what I’m talking about. I have been involved in corporate valuations for over 40 years.

[valuehurts] 19/12/2023 23:56

That discount rate is not steep at all. Thats only about 3 percent real so no real risk premium. I would be using a 15 percent discount rate at the very least. Then you have to back out the debt from the Pv of those sums.

[chopp1] 19/12/2023 20:47

Future cash flows for this type of business are actually fairly predictable not something which is subjective. And of course a company is worth whatever someone is prepared to pay for it and that is not necessarily fair value. However, the point I am trying to make is that as soon as you start writing down fair value, it becomes a self fulfilling prophecy. That is the danger for H’s shareholders; the board are helping to erode the value of the assets through their actions.

[riverman77] 19/12/2023 17:16

Future cashflows are a very subjective estimate - in this case they appear to have been too optimistic, so I stand by my view that valuations were overstated.

[jeffian] 19/12/2023 17:08

"fair value based on future cash flows discounted at a high discount rate"

That's an opinion. Market value is what someone is actually prepared to pay you.

[chopp1] 19/12/2023 14:08

The valuation isn’t overstated; as I have said it is fair value based on future cash flows discounted at a high discount rate. There is a difference between fair value and what others may be prepared to pay in a fire sale, which is the stupid situation Hipgnosis has got itself in. But the valuation itself is not overstated.

[riverman77] 19/12/2023 12:45

From what I gather it was well known in the industry that SONG were overpaying for catalogues - indeed they almost single handedly created a bubble with all the splurging of cash following multiple equity raises.

[spectoacc] 19/12/2023 12:39

Sounds like the title to a song.

They'll give you £1,000 for it.

[bonio10000] 19/12/2023 12:37

So, in essence, nobody knows what the assets are worth.

[cousinit] 19/12/2023 12:34

Good point Anvil. Have a vague recollection of that.

So easy to see how manager solution becomes 'where can I place assets to earn most in fees?'. Which is not quite the same thing as maximising value for SONG (especially where there is now a Board with a bit more steel).

[anvil2023] 19/12/2023 12:09

Relatively unusually, the manager is remunerated by reference to market cap, rather than NAV, for this trust. Their fees have halved with the price movements this year.

[cousinit] 19/12/2023 11:55

Wouldn't surprise me if he had. These things rarely arrive on a whim.

[laughton] 19/12/2023 11:51

Ah, good point. Maybe Chris Mills has started work already?

[cousinit] 19/12/2023 11:49

Are they stupid though?

The manager is remunerated through NAV based fees, I'm guessing the termination fee is a derivative of NAV. The manager has offered to buy assets markedly below NAV. Other deals have been done below NAV.

The manager runs lots of other portfolios which no doubt remunerate based on NAV. If the manager can't make a spirited defence of NAV then they should be prepared to see their fee income cut across the piece.

[riverman77] 19/12/2023 11:43

Surprised this didn't crash 20% or more, although I guess everyone knew the valuations were massively overstated, hence the discount.

[chopp1] 19/12/2023 11:20

This board is stupid. Talk about washing your dirty linen in public! An independent valuer is there to value the assets at fair value being the expected future cash flows discounted at a predetermined discount rate which in the case of H is quite steep, 8.5%. If they write that value down, that means they are valuing it below fair value, almost fire sale value, which would signal a bonanza to anyone looking to bid. How stupid can you get. Can’t we get some competent directors on the board? You would only write the assets down if you didn’t consider the business to be a going concern and the assets were being held for sale……..

[hohum1] 19/12/2023 07:07

Delayed interim results…

[fgump] 18/12/2023 19:24

Some decent trades today. Mr Mills is a doer. Something is going to happen here and he's pretty much always on the right side of that trade.

[rambutan2] 16/12/2023 04:49

A couple of day's ago the FT reported that KKR had hired advisers for a potential sale of a catalogue they bought for $1.1bn in 2021 after potential buyers had expressed interest. The piece said that values were down 14% from their peak in 2019 (14% discount was what Roundhill went for, I think?) according to Shot Tower Capital (who picked for the SONG strategic review).

[rambutan2] 16/12/2023 04:36

Now, that's a catch for the new board! Mr Mills loves nothing more than a complicated legal tussle, of which he's had dozens both here and in the States over the last four decades. He sounds a gent, but knows how to play tough.

[tiltonboy] 15/12/2023 23:28

He's been a busy man recently with bids for a number of companies where he held decent stakes.

It will be interesting to see if he builds up a holding here

[garbetklb] 15/12/2023 19:18

Extremely interesting appointment of Christopher Mills as NED. Per Hipgnosis website, Harwood don't appear to hold >3%.
And he's donating his fee.