Round Hill Music receives second independent valuation report on its portfolio

Round Hill Music Royalty Fund Limited (“Round Hill Music” or the “Company”)

Second independent valuation report from FTI in line with Citrin Cooperman’s fair value assessment

Round Hill Music (LSE: RHM), which invests in evergreen music catalogues with proven longevity and revenue streams, is pleased to announce it has received a second independent valuation report (the “FTI Report”) on its portfolio of music rights from FTI Consulting Inc (“FTI”).

The FTI Report affirms the valuation as at 31 December 2022, prepared by the Company’s independent valuer, Citrin Cooperman. The FTI Report was commissioned by the Board ahead of the publication of its full year results for the year ended 31 December 2022, which are expected to be published later this month, to provide an additional data point for the market on the fair value of the Company’s investments.

On 6 March 2023 the Company announced that, following receipt of an independent valuation from Citrin Cooperman (as at 31 December 2022), its Economic Net Asset Value per Ordinary Share was US$1.28 ("Economic NAV") and its unaudited IFRS NAV per Ordinary Share was US$0.93 ("IFRS NAV"). The Economic NAV included a c.US$43million increase in the valuation of the Company's portfolio to c.US$603 million (including its equity interest in RH Carlin Holdings LLC ("Carlin interest")).

The FTI Report provides two valuations. One is based on a transaction using financing with traditional bank debt and one financed through an asset backed securitisation (“ABS”) structure. The discount rate that results from the Weighted Average Cost of Capital (“WACC”) analysis in the bank debt valuation is 9.25% and the discount rate that results from the WACC analysis of the ABS valuation is 8.25%. This compares to a discount rate of 8.5% used by Citrin Cooperman. FTI applies a low, mid and high range of valuations. In its mid case, FTI forecasts that overall portfolio cash flow will grow by 7%, 6% and 5% in 2023, 2024 and 2025, respectively. The FTI growth rates compare to Citrin Cooperman’s base case assumption of 5% for all income types (excluding a 2% assumption for ‘Other’ income) in 2023, 2024 and 2025, respectively. While FTI assumes a higher discount rate, their elevated growth assumptions largely offset any negative impact. Accordingly, FTI’s valuation for the traditional bank debt approach results in an overall variance of just (3)% compared to the Citrin Cooperman valuation.

The results of the FTI Report are set out below and are based on the mid case valuation.

FTI Bank Financing Structure Valuation (as at 31 December 2022):

FTI ABS Financing Structure Valuation (as at 31 December 2022):

FTI’s comprehensive valuation methodology is based on a combination of the following:

FTI benchmarks to the observed long-term trends for similar music publishing and recorded music catalogues, as well as the broader music industry, and prepares an independent range of valuation indications.

Round Hill Music also provides additional cross-reference of the implied multiples to recent transactions using the Shot Tower M&A multiples database.

Shot Tower Capital (“Shot Tower”) is an investment banking boutique that provides advisory and capital raising services in the media sector with a specific focus on the music industry, where it has completed more transactions globally than any other investment banking firm.

Commenting on the FTI Report, Josh Gruss, CEO of Round Hill Music LP, the Company’s investment manager, said: “The independent valuation that we have received from FTI Consulting supports our strong view that the Round Hill Music portfolio is significantly undervalued by the market and therefore offers considerable upside potential, as reflected in the organic growth that has been delivered since IPO.

FTI Consulting Inc is a publicly traded business advisory firm with 6,400 employees worldwide that has a deep music specialisation. It performs valuation services for many of the music industry players and is commonly engaged in support of music securitisation transactions to provide independent financial forecasts and valuations for underlying music catalogue assets. In addition to the forecast and valuation services, FTI is also asked to provide additional support services to the underwriter, ratings agency and/or investors, as required.