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MMTRS.PK - Mills Music Trust


u0422811
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Has anyone looked at Mills Music Trust before? 

 

They are a royalty trust that owns the rights to over 25,000 songs (only about 1,500 songs actually generate royalties).  Approx. 66% of royalties come from the top 50 songs.  The copyright on this stuff is 95 years and the first copyright on a top 50 song expires in 2018. 

 

They pay out practically all their income (less G&A) in the form of dividends.  Over the last five years the dividend has averaged around $3.50 per share (they currently trade at $37 so they have a yield of around 9%).  The yield does vary year per year depending on how many plays their catalog gets. EMI licenses their catalog and pays them for it.  YTD they have paid out $2.62 per share versus $2.09 same period last year.

 

Any thoughts on this name or valuation?  If they can keep their average payout up that equates to around $21 in cumulative dividends between now and 2018.  Then presumably the dividends will start easing as songs come off copyright protection.  My question is do you think there is enough legs to merit purchase or is this something that needs to be acquired opportunistically to ensure higher yields. 

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Yea I saw that.  Does a good job giving you background info but no one has yet to tackle the valuation question.  I read through some Qs and Ks (they are amazingly short) and there is really not enough info to gain conviction on what the royalties could look like post 2018. 

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My only observation is if the FCF and distributions continue to decline this is not a cheap stock.  From 2006 to 2010, distributions have declined by 6% per annum.  These types of firms trade at multiples below 3x FCF and based upon the yield this is tradng close to 11x FCF.  The 11x mulitple is fair value with about 1% long-term growth rate based upon the 8.5 + 2G Graham formula.  So for it to be cheap FCF growth has be in excess of 1% per year.  Will they do this?  I don't know but 1% growth is what the current price is implying and it has been -6% from 2006 to 2010.  On the surface it does not sound like a good deal.  The price may be bid up due to the dividend and folks chasing yield.

 

Packer

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I did some quick DCF calculations, and key input here is of course what kind of return you would want for an asset like this. If you think a 5% return would be a fair relative to the amount of risk you would be taking, you would get a NPV ~ $35/share if you assume the dividend shrinks with 5%/year (starting at the $3.5 average). If you start with a $3.2 yearly dividend NPV would be $32/share. If you also think a 6% discount rate would be better NPV would be 29$/share.

 

If you are optimistic and think yearly dividends will stay at the average of 3.5$/share until 2018 before starting to decline NPV would be 44$/share with a 5% discount rate.

 

It is obviously matters a lot what kind of assumptions you want to make, but Millis certainly doesn't look very cheap. Maybe fairly valued if you are happy with around 5%/year.

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I did some quick DCF calculations, and key input here is of course what kind of return you would want for an asset like this. If you think a 5% return would be a fair relative to the amount of risk you would be taking, you would get a NPV ~ $35/share if you assume the dividend shrinks with 5%/year (starting at the $3.5 average). If you start with a $3.2 yearly dividend NPV would be $32/share. If you also think a 6% discount rate would be better NPV would be 29$/share.

 

If you are optimistic and think yearly dividends will stay at the average of 3.5$/share until 2018 before starting to decline NPV would be 44$/share with a 5% discount rate.

 

It is obviously matters a lot what kind of assumptions you want to make, but Millis certainly doesn't look very cheap. Maybe fairly valued if you are happy with around 5%/year.

 

That was my fear. Given that only like 300 or so shares trade on average it makes me think putting out a way low bid in the mid 20s would be worth it just in case you get a motivated seller.  On the flipside, its a shame this isn't a good short candidate due to the high cost of borrow coupled with the dividend, I love when a businesses fundamentals will so obviously deteriorate over time like this.   

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I was the one who wrote the blog post about them, funny how this has taken off.  I came across this company, seemed a bit weird so I wrote them up it's been attracting a lot more attention then I ever expected.  Of course that's the goal of my blog, to dig up these things no one else looks at, so I guess it's working.

 

u0422811 just curious did you dig this up on your own this week as well?  Weird coincidence.  I always think I'm the only one looking at these things, but I guess that's not really the case, especially if there are SEC filings.

 

I've looked at these sorts of income trusts before.  I owned an oil one for a few years BPT.  There was a NPV of like $15/sh for the oil, traded in the $100s, I think it still does.  It kicked out it's NPV every 1.5 years or so.  Eventually it'll run out as well, the oil field is finite, but until then with oil prices high the dividends are pumping. 

 

So a few things from what I understand, I don't think it's safe to say the dividend will decline 6% per year for eternity due to the last few years.  The dividend is determined by some formula that EMI uses based on the number of times certain songs are played on the radio or downloaded.  These are old songs, some favorites for events, others holiday songs, and most just old dead songs.  With that said I would have to assume demand for these songs is mostly stable.  The songs have been out since the 40s and 50s, they're not going to be popular anymore but they will probably get played at a similar frequency going forward as they have in the past.

 

I posted in the comments of the post a link to 25 or 50 of the top songs the trust owns.  I recognized a few, but most were just titles to me.

 

As for songs rolling off the top 50 songs make up 66% of the revenue, so when a song rolls off you're talking like a 1.3% hit to revenue.  I have no idea when these songs will expire, but given that most recorded music started to take off in the early 1900s there is a long runout for rights here. 

 

So as for shorting I think it's a total bust, this could take 50 years before it finally runs out.  And even trusts that run out soon are irrational (see GNI).  If you shorted now you're looking at like 2% a year maybe a tad higher...you can earn more with a treasury bond.

 

I think if you could pick up any shares you could probably sit on them for five or ten years and never worry about the trust running to zero.  Most likely you'd end up selling your shares for the same price, maybe some growth.  The shares traded for $15 about ten years ago, so they've doubled.

 

The biggest problem is getting shares.  There were three trades in February, the last trade before that was October, a few trades in Sept, and August as well.  Looks like 6k shares traded in the first few days of September. 

 

If you want shares here's my advice.  Get a hold of the shareholder register and call shareholders asking to buy their shares from them.  You can also take out an ad in a newspaper with a tender offer.  This sounds crazy but it's really the best way to get shares in an illiquid stock.  There are a lot of shareholders who are heirs and have no idea what they hold, but don't know enough to sell or are told the stock doesn't have a market so it's not worth their time.  If you can get a hold of at least one share and register it in your name, or get a letter from your broker on the DTC's behalf saying you're the beneficial owner you're legally entitled to view the shareholder register.  Some companies will play tough and make you come to their location on a certain day time etc, with Mills I don't think it would be an issue considering a trustee is handing this.

 

Packer - No growth, there is no firm, no FCF.  This is just a straight trust, EMI pays the trust, the trust pays out 99+% in straight cash minus the salary for an accountant and a lawyer.  If you call the trust you'll end up at the bank that manages the thing in their trust dept with a guy who manages 50 different things like this.  It just happens Mills Music is traded.

 

 

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Yeha that GNI thing is just stupid. There are a lot more things like this that are overvalued, you for example also see it in closed end funds that have high dividend yields because they are simply returning part of the invested capital to share holders....

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I actually had done a bunch of work on GNI a few years ago.  I came across MMTRS actually from an old seeking alpha posting that highlights publicly traded "unusual" trusts.  It can be found here:http://seekingalpha.com/article/25734-unusual-trust-stocks-in-the-u-s

 

After reading that article I saw your posting on your blog (nice work BTW).

 

I agree that your DTC approach is probably the best.  Problem is I don't think I would be a buyer at current prices and its unlikely anyone would want to sell to me in the mid 20s so I might just be out of luck on this one.   

 

Its no doubt an interesting situation and is obscure enough that its right down my alley, but its a shame that the ask is so high as to eliminate the bulk if not all of the margin of safety. 

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  • 6 years later...
  • 4 months later...

It looks like there might be a fairly nice distribution soon.

 

As of April 23, 2019, EMI, the Trust and the Trustees entered into an audit settlement agreement pursuant to which EMI agreed to pay the Trust $1,000,000 in full and final settlement (the “ Settlement ”) of (i) all Trust claims related to the underpayments identified by the Prager Report and (ii) that portion of the Underpayments attributable to the Audit Period. The Settlement does not cover any claims for any periods of time after expiration of the Audit Period, nor does it adjust the parties’ entitlements arising from the consequences of any future writer royalty underpayment audits relating to the Audit Period.

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