FTSE 100 on course to end the week flat, Computacenter’s ‘extraordinary’ revenue jump, Berkeley sees 35% drop in reservations, takeover offer for music royalties vehicle

“Early trading on Friday put the FTSE 100 on course to end an up and down week broadly unchanged,” says Russ Mould, Investment Director at AJ Bell.

“The market continues to wax and wane with every data release as investors desperately look for signs the end is in sight on interest rate hikes. Overnight there was weakness on Wall Street as the enmity between China and the US continued to impact the tech sector – reports Chinese government workers have been banned from having iPhones taking a bite out of Apple.

“These developments are bitter news for the consumer electronics giant as it gears up for the expected launch of the iPhone 15 on 12 September.

“While often seen as being at the more prosaic end of the tech space, there was nothing boring about IT infrastructure seller Computacenter’s first half earnings. Revenue up 27% is an impressive showing, potentially even ‘extraordinary’ as the company rather immodestly dubbed it, given the difficult macro backdrop. It suggests the company is making market share gains which is encouraging for its future prospects.

“Housebuilder Berkeley surprised nobody with its trading update but a 35% drop in reservations tells you just how tough the housing market is right now. The company is sticking with guidance but a grumble at the planning system suggested the sector’s current travails are prompting some testiness. That’s not to say such complaints aren’t justified given how under-resourced many local planning departments are.”

Music Royalties: Round Hill and Hipgnosis songs fund

“Like the hype machine which powers the music industry, with publicists bigging up the next big thing, the journey to the top is often rapid but the fall back to earth comes soon after.

“For a brief moment, music royalty-related investments were all the rage. Everyone was excited at the prospect of enjoying financial gains every time a famous artist’s song played on the radio, featured in a film or advert, or performed live. Investment vehicles were set up to buy royalties from artists and producers with the aim of collecting a steady stream of income in the future and paying part of that to investors while using the rest to acquire even more royalties.

“The prospect of a hefty pay cheque upfront rather than having to wait years for royalty money to arrive was attractive to those in the music industry, so they sold their royalties to various investment vehicles both private and publicly listed.

“Covid, in particular, cut off income from live shows for musicians and so they struggled to live the life they once enjoyed – hence the eagerness to sell their royalties. Fast cars, fancy houses and pool parties all cost money.

“What investors failed to appreciate was that music investment vehicles would be less attractive when interest rates shoot up. They created their business model when rates were next to nothing, but rates suddenly going to 4% or 5% suddenly changes the story.

“A higher discount rate used to calculate the present value of expected future cash flows made these vehicles less appealing, hence why the listed ones struggled with weak share prices over the past 18 months or so.

“Round Hill Music Royalty Fund floated on the stock market close to the peak of the hype in music investments. Its share price traded sideways for a year and a half, and then went into freefall as interest rates shot up.

“It has now received a takeover offer at a hefty premium to last night’s closing market price. Shareholders have the opportunity to get out at a price higher than the shares have ever traded since listing. That is a relief to them, but hardly chimes with the expectations for the company at the time of its listing in 2020.

“The more high-profile music royalty vehicle on the London Stock Exchange is Hipgnosis Songs Fund. Its shares jumped 13% following the Round Hill news as investors suddenly perked up, wondering if it too will be rescued out of the doldrums with a bid.”

These articles are for information purposes only and are not a personal recommendation or advice.