The Secret Broker: A boosey investment in ’82 comes back to life in 2021 as an upside-down elephant
The Secret Broker
The Secret Broker
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After 35 years of stockbroking for some of the biggest houses and investors in Australia and the UK, the Secret Broker is regaling Stockhead readers with his colourful war stories — from the trading floor to the dealer’s desk.
Luckily for me, my memory is like that of an elephant and I can also drink like an elephant and never get a hangover. That can lead me sometimes to good things and sometimes, to bad things.
In 1982, whilst working as a ‘Silver Button’ on the floor of the London Stock Exchange, I got an order to buy 100,000 Boosey and Hawkes. I just loved the name and over the next month, everyday I would get an order to buy between 100,000 and 250,000 shares.
In those days, I had to negotiate the best buying price, from three market makers or ‘jobbers’ as they were called then.
I would ask each one, in turn, for a “price and size” and they would quote me a spread and their dealing size in that spread. They would say something like “1.01 to 1.05 in a hundred and .99 to 1.07 in 250”.
This meant that I could sell at £1.01 or I could buy at £1.05 in 100,000 shares or less or I could buy or sell up to 250,000 shares on the slightly wider spread.
Now considering that my Dad’s house was worth about £45,000 at the time (or so he would boast to fellow drinkers at his local tennis club, at this time), if I bought 250,000 Boosey and Hawkes at £1.07, the total consideration would be £267,500 or 5.9 nice detached middle class homes, in the ‘burbs.
Over that month, I would have bought the equivalent of 100 houses worth of stock, without moving the price. On some days, one of the jobbers would send over one of their lads to tell me that “Mr Jenkins can offer you 250 Booseys at £1.03, firm for 5 minutes”. That allowed me to call the client and offer him 250,000 shares at £1.03 a piece.
He could either accept or reject, or if he was out at lunch, I would just do it on his behalf.
And that was how business was done on the floor. Moving stock around on a handshake or nod of the head and all under the knowledge that everyone stood by the motto, ‘My word is my bond’.
After the buying was finished and the fund had declared their substantial shareholder notice, the fund manager took me out for a thank you lunch at The Long Room. I think we finished about midnight in some bar in Soho and most of the time he wouldn’t shut up about his top stock pick, Boosey and Hawkes, and why it was such a great investment.
What he liked about them is that they supplied all the sheets of music needed to schools for plays and the like. If a school was putting on, say, a ‘Joseph and the Amazing Technicolor Dreamcoat’ play, they supplied the sheet music and they then paid a small royalty to the music owners, Tim Rice and Andrew Lloyd-Webber.
They also made the instruments with which the kids could use to (badly) re-create the play, in front of their very proud parents.
As he explained to me, this was like a goldmine, without price fluctuations or currency and country specific problems.
So, 38 years later I read about Merck Mercuriadis and his UK listed fund, called the ‘Hipgnosis Songs Fund’ (Ticker: SONG) and how he is going about buying up the rights and attaching royalty payments due to the creators of famous songs.
So far he has accumulated the rights to over 13,000 songs.
Their last annual report makes for fascinating reading, as in it they spell out the thesis under which the fund is run. Last year it generated £64m in revenue and produced a profit of £30m and it pays a dividend.
It has captured the eyes of a few big funds and after 20 months of listing it became included in the FTSE 250 index.
Back in the Boosey days, there were no music streaming apps. Just records and tapes. Now, there are about 400 million people who stream music to their phones and Bluetooth it to their car radio or home boombox.
Spotify generates about US$1.8bn a quarter in revenue and passes on some of that as royalty payments to the song’s creators.
To give you an idea on what sort of fees can be generated, Slade’s 1973 song ‘Merry Xmas Everybody’ generates £500,000 in royalties every Christmas and Hipgnosis owns the royalties to Mariah Carey’s ‘All I want for Christmas’ which made it to number 1 in the UK charts 26 years after its first release.
See here for Merck’s thoughts on the song and why he bought the rights to it, for the fund.
So far, Hipgnosis have spent £676m buying up the rights to those 13,000 songs and recently, they paid US$150m to Neil Young for a 50% right to his songs and their royalties. Merck’s target is 60,000 songs and why, you may ask, would Neil Young want to cash in some of his chips?
Well, if you look at the Estate of Prince, who died without a will, you can see the complications that the lawyers have created over his rights. This way Neil gets a clear path on how his cash payment can be handled, when he passes away, as royalty rights can become very complicated and abused, if in the wrong hands.
Here is an overview from their last annual report on how income is derived in our modern world
As I said earlier, their annual report makes for excellent COVID lockdown reading. Here is a link to it and if you are wondering why there is a mention of an upside down elephant in the heading to this article, here is the fund’s logo.
I think they have managed to capture how my Boosey night out ended 38 years ago beautifully.
And even though I am not allowed to give out advice anymore, if I do go long, I will be making up a Spotify list with some of the titles they own and sharing it around with family and friends and then sitting back, headphones on and enjoying their music stream and their dividend stream, all at the same time.
It’s all music to my ears!
Feel free to contact him with your best stock tips and ideas.