Charles Jillings, CEO of Utilico, energized by strong economic momentum across Latin America. Watch the video here.
London South East prides itself on its community spirit, and in order to keep the chat section problem free, we ask all members to follow these simple rules. In these rules, we refer to ourselves as "we", "us", "our". The user of the website is referred to as "you" and "your".
By posting on our share chat boards you are agreeing to the following:
The IP address of all posts is recorded to aid in enforcing these conditions. As a user you agree to any information you have entered being stored in a database. You agree that we have the right to remove, edit, move or close any topic or board at any time should we see fit. You agree that we have the right to remove any post without notice. You agree that we have the right to suspend your account without notice.
Please note some users may not behave properly and may post content that is misleading, untrue or offensive.
It is not possible for us to fully monitor all content all of the time but where we have actually received notice of any content that is potentially misleading, untrue, offensive, unlawful, infringes third party rights or is potentially in breach of these terms and conditions, then we will review such content, decide whether to remove it from this website and act accordingly.
Premium Members are members that have a premium subscription with London South East. You can subscribe here.
London South East does not endorse such members, and posts should not be construed as advice and represent the opinions of the authors, not those of London South East Ltd, or its affiliates.
Cenkos note has them increasing Dividends. At current level over 8% compounding in a difficult market works all day long. I still look forward to the day when a Royalty partner sells their business and we get our 20% exit fee and profit from sale of shares in the Royalty company then we will see what Duke is really all about
The benefits of the refinancing will also begin to kick in this quarter; unfortunately a fair chunk of the benefits will be eaten away by the increase in Corporation Tax. So there should still be sufficient dividend cover for dividends to remain at 0.7p a quarter after the evil tax man commeth...
3rd March RNS - Based on current trading, Duke expects to achieve recurring cash revenue* of £5.7 million in Q4 FY23. This represents a 21% year on year increase (Q4 FY22: £4.7 million) and an increase on the prior quarter, Q3 FY23, which saw the Company deliver record recurring cash revenue of £5.6 million.
When’s the trading update due? Been early Feb past couple of years?
https://www.ii.co.uk/analysis-commentary/five-aim-share-tips-2023-ii526360
Olderandwiser,
DUKE's royalty investments are secured on the underlying assets, so as long as their due diligence is good, then the loans are fairly safe "in the event of a corporate failure". From the last set of accounts:
"The Group also has security in respect of the royalty investments which can be called upon if the counterparty is in
default under the terms of the agreement."
There are also some loan investment, but they represent a marginal amount [less than 3% of the NAV]. 2 points worth noting:
1 - as the company grows, its fixed costs remain relatively constant, so they are leveraging the cost base as they grow. Operating costs are forecast to drop from 27% of revenue in Q1 2021 to 10% in Q2 2023.
2 - there has only been one failure that I can think of... A river boat cruise company in Germany around the beginning of Covid and thanks to security over the boats [which were sold] they ended up with a loss of around 3% of the investment.
But, as a growing company, there is always a risk of more capital calls; the new credit facility recently announced gives more headroom but quite a lot has been committed to potential follow-on investments in existing partners. My 'back of a *** packet' calculation is there is about £20m to be invested before more money will be required [potentially from a placing] if / when opportunities arise.
It should also be noted that Royalty Partners can buy themselves out of their agreements with DUKE, so fresh capital can potentially come from a commercial divorce.
baf3, how does the maths here work in the event of a corporate failure of one of their Partner investments? Or just a roll up of interest through inability to pay the royalty fee first charge? Is that 2.8p dividend really secure?
Some were not impressed by the new financing arrangement. To put it into perspective, Trackwise did a placing today at a 92% discount. The Stockpedia comment included:
'Be careful out there, conditions are really grim for small caps that run out of cash.'
Not only did DUKE want more cash, but was able to borrow more at a cheaper rate. Their lenders were clearly impressed by the figures they saw.
Ah, but timst you miss the point. Both the original loan and the new loan are based on SONIA, so in real terms the interest they pay is reduced in any event
Except that SONIA is now around 2.93% yesterday compared with 0.05% last year.
In the current market, I sum this new credit agreement at 225bps lower in one word:
OUTSTANDING
From the Investormeet company
baf3: They did confirm my suspicions. For example Trimate are not capable of paying their full cash payments. The rest is being accrued in the hope that Trimite turns the business around. Duke effectively warned that in the case of individual losses they believe they will be able to maintain the dividend going forward.
CaneToad: The whole point of corporate royalties is not to take on something that is high risk. Whilst it was a concentrated portfolio in the early days I don't think that can be said today. 11% is the highest single contributor and that will decrease with time.
So we can expect one or more new partners in next 3-4 months and one or more buyouts in next 12 months.
Of course, whilst buyouts are good in the short term for Duke shareholders it does mean the better quality companies leave the portfolio.
Was interesting discussion on the NAV. Basically don't expect much change in NAV over a long period of time; it's not their focus. Their focus is purely on increasing the dividend.
Was good to get two of my questions answered in the presentation but given how few questions there are I can only suppose investors are that interested in the company; which is often a good sign!
They are presenting next week free to register should explain everything
https://www.investormeetcompany.com/
So what exactly is a 'Royalty Partner'?
Is it like a company issuing multiple bonds?, e.g. Aviva has >50 bond issues. If so, then it is super-concentrated as I thought, because e.g. if Avia were to get into trouble, all of the bonds would be hit. FYI. I not saying for 1-second that Avia would ever have that problem.
Some of the Royalty partners hold multiple investments. I wasn't in Duke in 2015 but it certainly wasn't Duke Royalty at that time name change different directors etc
One more question: what happened back in 2015? Presumably there was some debt/equity swap, where shareholders were wiped out? If not, why did the share price drop from over 1,000p back in 2012, to 36p ?
One thing that I do not understand is the distinction between their two statements:
'13 Royalty Partners' vs 'exposure to 48 underlying operating companies'
They list the portfolio breakdown by sector (13 again):
Industrials - 5
Business Services - 4
Healthcare - 3
I.T. services - 1
But I don't see any mention of the portfolio weight breakdown, i.e. what is the biggest single exposure?
@baf3: thanks for the detailed info. Maybe I'm looking at the wrong thing, but on their website, they say they have '13 Royalty Partners'. I'll dig into the portfolio more.
CaneToad Duke has exposure to 48 companies from memory across varying sectors and around UK EU and Canada from memory. the yield is circa 8% which is attractive broker suggesting 9% for 2024. where duke scores on top of the current yield if a Royalty partner repays the loan Duke get a 20% exit Royalty fee, They also have a fair number of investments with up to 30% equity holding.
Run the compounding model on 8 or 9% yield dividends reinvested. Then take account of the above e.g
£10m Royalty settled after 5 years with an equity interest:-
£1.35m per annum Royalty x 5 plus potential for 6% per annum increase x5
£2m exit fee
Say £3m Equity profit
Rinse and repeat
Year 6
£15m to lend
£2.025m per annum income
etc etc
£2.025m per annum
Bare in mind they pay 8-9% imagine where it goes based on the above with pretty much fixed costs.
Compounding Heaven IMHO
I guess my first observation here is that this is a very concentrated portfolio. All you'd need is 1 or 2 of the companies to have problems and the share price is going to take a massive hit? i.e. the 'royalty' would become worthlesss?
The yield is very attractive, but in the current market, you can get similar from Legal & General and 10% from M&G, which are both FTSE 100, while DUKE is an AIM company... The risk here looks closer to one of the high yield bond funds (e.g. TwentyFour or BlackStone), but those are super diversified and offer a similar or higher dividend, so I don't see anything compelling here.
I'm happy to be proven wrong, because I've only done rudimentay research.
@Carcosa61: I agree with the sentiment of what you're saying. But your conclusions should be obvious from the 8% yield on offer... If you're looking for a very low risk investment, the yield will be around 3-4%. If you're prepared to take on higher risk, you'll achieve a higher yield. It's all about risk/reward. I'm not yet decided whether or not to invest here myself, because there are other, more diversified and higher yielding trusts....
Carcosa you sound desperate the results are stunning end of. Simple you don't like don't buy meanwhile I will continue to add
Yes, company accounts do tend to lag a bit but not excessively so. It also reflects the conditions under which DUke continued to fund them at the time. so I suggest you look harder.
Also note that currently 94% of companies are actually paying Duke, which is 3% worse than at FYE22 at 97%
I've looked at the accounts in Duke's portfolio and not sure what you are reading and what you are basing your comments on.
The filed data is always a long way behind and often ignores the fact that these business's have subsequently added other assets with Duke's funding. 5 out of 5 increasing Royalty payments does not correspond with your analysis.
Regards High risk Duke's due diligence has proven to be reliable.
Broker pointing to 3.1p dividend 2024
If you review those companies in the Duke Portfolio which submit their accounts to Companies House many of them are in very poor health and with some openly saying that they are not a going concern should future finance not be available from Duke.
This also aligns with Dukes' statement yesterday in which they say "... opportunistic in taking advantage of the current market where we are seeing other lenders pulling back from making new investments." If other lenders are pulling back then that indicates to me high risk.