Good morning,

Hopefully I don’t experience any technical problems today!

Yesterday’s report eventually featured Gocompare.Com (LON:GOCO), Foxtons (LON:FOXT) and Proactis Holdings (LON:PHD), and is at this link.

Duke Royalty (LON:DUKE)

(Please note that I have a long position in DUKE.)

Duke Royalty (LON:DUKE) - for those of you who are interested in Duke Royalty, my interview with CEO Neil Johnson has been published at Cube.Investments and should also be available through whatever podcast app you use. And it’s on YouTube at this link.

For the background to this interview, please check the archives. There were a couple of points where I was seeking clarity after two big deals were recently executed by Duke.

The key insights I took away from the interview were:

  • The higher yield at Capital Step's investments could be seen as a function of their smaller size (Capital Step is the royalty company acquired by Duke for £10 million, plus the assumption of Capital Step's debt facility). Smaller investments tend to carry a higher yield. Neil Johnson confirmed that the features of the CS investments were very similar with Duke's.
  • The 12% equity stake in Miriad products was a "sweetener" that wasn't explicitly paid for. Duke is earning the full yield on the entire £10 million investment it made in this company. 
  • Equity holdings are likely to be held until the investee goes through an MBO/private equity deal. While Duke as a minority shareholder would not be in control of the sale process, it would be open to the possibility of selling its equity holdings at agreeable prices.
  • Further to that point, there is no reason why Duke needs to hold its royalty agreements for 30 years or in perpetuity: there is always the option for management or someone else to offer to buy them out of their agreements.
  • Finally, the dividend payout ratio might fall to c. 60%. The range for royalty companies is 60%-80%, with the payout ratio tending to fall as they grow. (I am in favour of a reduction in the payout ratio because I want the company to compound investor returns quickly and my attitude is that "every little…

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