MIDAS SHARE TIPS: Round Hill is blowing the music industry’s trumpet

Music has lasting appeal, but some songs are more enduring than others. Round Hill Music uses a mix of experience, gut feeling and financial courage to choose the winners – songs that will be enjoyed for years to come.

The company makes money from royalties, payments made every time a song is performed, played or used in any form, from the background buzz in a shopping center to the centerpiece of a West End musical.

Nashville-based Round Hill was listed on the London stock market in the fall of 2020 at $1 per share. Today the stock is 78 cents (63p) on fears of the effect of high interest rates.

These fears seem exaggerated. Round Hill owns 51 music catalogs, containing more than 120,000 songs, group revenues are growing rapidly, and dividends yield more than 5.5 percent.

Some market watchers view the music industry as inherently unstable, but Round Hill CEO Josh Gruss sets out to prove the skeptics wrong.

A dedicated guitarist since the age of 12, Gruss comes from an illustrious financial family and pioneered the music royalty industry. He set up his first fund more than ten years ago.

Round Hill owns original songs as well as recordings. Whenever a song from Round Hill is streamed on Spotify or any other online platform, the company receives compensation.

When CDs or records are sold, the cost changes hands. And royalties are also due when songs are performed, played as background music, or used in movies, shows, TV shows, or advertisements.

Hit songs are often played over and over for the first two years. But many lose their mojo after that initial burst of enthusiasm.

Therefore, more than 70 percent of Round Hill’s portfolio dates from before 2000, while only 6 percent is from after 2015.

What A Wonderful World, for example, was written in 1967. The song, made famous by Louis Armstrong, is now part of a global advertising campaign by French cosmetics brand Lancome that earns Round Hill some serious money.

Pets at Home uses I’d Do Anything For Love (But I Won’t Do That), a 1990s hit by the rock group Meat Loaf, and Lays Crisps uses an adaptation of the 1970s classic All By Myself for his Champions League advertisement.

All three tracks are part of the Round Hill portfolio, pieces of music known and loved all over the world.

This is no coincidence. Round Hill takes a forensic approach, requesting comprehensive royalty data to assess whether songs are worth buying, and if so, at what price.

There is also potential to improve returns once tracks are on the roster and Round Hill has a team of managers dedicated to this. Revenue for 2022 increased 32 percent to $32.4 million, while the dividend rose 13 percent to 4.88 cents.

Growth will continue this year, with sales expected to reach at least $35 million, rising to nearly $40 million by 2025.

Analysts have forecast a dividend of at least 4.5 cents over the next three years and Gruss is confident about the future. Last month alone, he spent nearly £9 million on stocks, bringing his family’s stake to 6.3 per cent.

Controversy reigns in the music royalty industry, so Round Hill asked two companies to value their portfolios.

Both yielded valuations of approximately $600 million. That equates to a net asset value per share of $1.27, implying that Round Hill stock is significantly undervalued.

Midas verdict: The music industry is huge, vibrant and growing fast. Round Hill Music Royalty Fund is small in this £75bn market, but Gruss is a savvy operator and the shares, at 78p (63p), offer attractive dividend income and long-term growth prospects. To buy.

• Traded on: Main marketTicker: RHM (in dollars) or RHMP (in sterling) Contact: roundhillmusicroyaltyfund.com or 01481 702 400