NZ
The New Zealand market (NZX50, -0.4%) was down yesterday and has had a rough few sessions as many major companies trade ex-dividend following the recent earnings season.
Most notable NZX stocks that have gone ex-dividend: Channel Infrastructure, Heartalnd Group, Summerset, Meridian Energy, Air NZ, Contact Energy, EBOS, Precinct Property, Sky City, Mercury NZ, Fletcher Building, PGG Wrightson, Spark, and Tourism Holdings.
Companies yet to go ex-dividend from the current earnings season include Genesis Energy, Auckland Airport, Vulcan Steel, Delegat Group, and Skellerup and NZX Limited.
US
US market (S&P 500, +0.8%) was up strongly overnight, following Arm’s IPO and encouraging economic data.
US retail sales came in better than expected rising +0.6% month on month, boosted by higher energy prices — markets seem to be interpreting that the consumer is still resilient and the US economy could navigate a “soft landing” even if rates remain higher for longer. We have our doubts… Similar to CPI print, the headline Producer Price Index (PPI) rose (+0.7%) more than expected due to a surge in energy prices, while core (which excludes food and energy) PPI increased by +0.2%. The latter reiterates views inflation is coming under control, while the economy stays intact.
US Headline Producer Price Inflation
Hipgnosis sold some songs and the golden egg king made some money
In 2018 the “future” of music was Hipgnosis Songs Fund. A bald Swede named Merck Mercuriadis declared song royalties as the hot new asset class and his company went ahead and bought hundreds of catalogues. Blackstone came in (more on that later) and provided more funding. The company has persistently traded at a 50% discount to its NAV. Now it is selling, uh, 19% of its portfolio to Blackstone for $465mn. Blackstone owns the majority stake in Hipgnosis Songs Management; the management company of the fund. So, maybe, the conversation went:
Merck, in his hip cool London apartment that is probably decorated with a Tracey Emin neon artwork: Hey, we’re kind of in a lot of debt and our NAV gap isn’t closing
Blackstone: Oh, we will buy it! How about we buy 19%?
Merck: But aren’t you the majority owner of the management company, and thus making management fees from the portfolio you uh, want to buy 19% of?
Blackstone: Yes, but we will buy it! I buy it.
Merck: Uh, ok. Fine, we will do a stock buyback or something.
This is actually what Hipgnosis will do — they will do a $180mn stock buyback and put in place lower advisory fees and shareholders will vote if the fund should continue to exist. You might think those advisory fees would go to the management company (the one Blackstone owns the majority of). You would be wrong. They go to “The Family” which is owned by Merck and employs literal members of his family (we wish we were joking; we are not).
You also might think that 19% of its portfolio is of everything the Fund owns. It is not. The 19% is proportionally from the first portfolio only, which includes songs from by Nelly and Rick James. Why not sell 19% of the whole lot? Why only sell part of Rick James? Who knows. Who knows with any of this, really — it is clear Merck had a great structure to reward himself, but not shareholders.
Anyway; it’s kind of clear what will happen here. Hipgnosis Songs Fund itself is a lame duck. But it is a box which owns a lot of good assets. Those songs still generate royalties and they still make money. Blackstone will likely buy the rest, slowly, and transfer the ownership from the Fund to its own private equity-style songs fund, which is also managed by Merck. It is the cup-and-ball trick, but with song catalogs. Modern finance!
In other news ARM finally IPO’d. It rose 25% in one day. Nobody should be surprised. Only 9% of the company was floated to shareholders. The rest remains with gold-goose-king Masayoshi Son’s Softbank. Of course it rose 25%. It was deliberately oversubscribed, and whatever retail investors who got crumbs paid over the asking price, because there was no availability. A good trade might be to buy the IPO and take advantage of the volume, and then sell and short the stock a week or two later, as the hype dies down. ARM’s revenue has actually stagnated over the last couple of years. It is trading at +90x fwd earnings. Hard to see the value here; a lot of hype.
An actual slide from a Softbank presentation