Small Cap Value Report (Fri 1 March 2019) - DUKE, RBG, RMV

Friday, Mar 01 2019 by

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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All my own views. I am not regulated by the FSA. No advice.

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Duke Royalty Limited is a Guernsey-based diversified royalty investment company. The Company specializes in diversified royalty financing and provides alternative capital solutions to a diversified range of businesses in Europe and abroad. The Company’s investment policy is to invest in, without limitation and restrictions (including geographical restrictions), long-term, revenue-based royalties in private and/or public companies, and or other alternative asset classes and/or financing instruments from time to time that bear similar risk and return characteristics. The Company provides financing solutions to private companies that are in need of capital but whose owners wish to maintain equity control of their business. It provides capital to companies in exchange for rights to a small percentage of future revenues. more »

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Revolution Bars Group plc is a United Kingdom-based operator of bars. The Company has a trading portfolio of approximately 60 bars located predominantly in town or city high streets, which operate under the Revolution and Revolucion de Cuba brands. The Company's bars focus on a drinks and food-led offering, and typically trade from late morning, during the day and into late evening. Revolucion de Cuba bars are characterized by their 1940s Cuban-inspired style, with dark woods, traditional bar counters, antique tiles, vintage furniture, Havana-style ceiling fans, and original Cuban artwork and photographs. Its bars are located in various places, such as Cambridge, Ipswich and Norwich in South East; Bath, Plymouth and Southampton in South West; Birmingham, Derby, Leicester, Loughborough and Milton Keynes in Midlands; Cardiff and Swansea in Wales; Blackpool, Chester and Huddersfield in North West; Sheffield, Sunderland and York in North East, and Edinburgh and Glasgow in Scotland. more »

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Rightmove plc is a United Kingdom-based company, which operates as a property portal. The Company's principal business is the operation of the Website. The Company's Website and mobile platforms provide online property search. The Company's segments include Agency, New Homes and Other. The Agency segment provides resale and lettings property advertising services on The New Homes segment provides property advertising services to new home developers and housing associations on The Other segment consists of overseas and commercial property advertising services and non-property advertising services, which include its third-party and consumer services, as well as data and valuation services. The Company offers its services through estate agents, lettings agents, new homes developers and overseas homes agents offering properties outside the United Kingdom but interested in advertising to the United Kingdom-based home hunters. more »

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  Is LON:DUKE fundamentally strong or weak? Find out More »

68 Comments on this Article show/hide all

moolahcoast 1st Mar 49 of 68

Good write up of Revolution Bars (LON:RBG) - I wish I could have read it yesterday!

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jonesj 1st Mar 50 of 68

In reply to post #453613

eezymunny, Insulting Graham based on your misreading of the article is very rude.   

Also, congratulations on Graham for another informative and amusing article.

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abtan 1st Mar 51 of 68

In reply to post #453583

Hi Peter

I completely agree with this comment.

Like yourself I have bought in at a higher value (c120p) and whilst agreeing that things are not going as well as I'd hoped, a company with an EV of £48m generating OCF of >£10m per annum - in a bad year - continues to keep me in.


  1. the dividend cancelled, 
  2. expansionary capex finally on hold
  3. refurbishment capex much less cash intensive (£200k per site so far this year, 15 refurbishments pencilled in for 2019-20 i.e £3m), 

most of the OCF should (eyes closed/fingers crossed) flow straight to FCF or to repay the bank debt. 

FYI below is the cash flow summary for H1: 


Some additional thoughts worth noting for anyone interested, both good and bad:

  • 11 out of the 75 bars are loss-making (this is bad).
  • Refurbished sites are seeing an uplift in performance
  • An onerous lease provision made 1 year ago has already been reversed due to a strong turnaround performance. I was under the impression that if the provision was made, the venue was forever doomed, or at least not a 1 year turnaround story.
  • By my workings the average profit/venue will still be c.£270k this year (excludes openings this year).
  • Conversion of some venues into evening-only to drive profitability. This feels like something that should have been done a long time ago, and is a welcome strategy.
  • Planned 11% reduction in annualised central costs (c. 7% of this has already been actioned)
  • 5 bars opened in 2015-16.
    £6.6m capex (£1.3m per venue)
    In the last 12 months alone Adj EBITDA = £2.3m! (£0.46m per venue)
    This is a much higher return that I was expecting for such old venues



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Chris Britton 1st Mar 52 of 68

In reply to post #453413

Versarien (LON:VRS) is an interesting case. They did a fund raising in Sept 2018 at 145p (current price 86p but it's been leaping up and down like crazy recently). I can't see a reason for the fall in the RNSes. I wonder whether the people who took shares in the fund raising are selling out. Alternatively they know more that I do (highly likely).

A similar case is Redt Energy (LON:RED). They did a placing in Oct 2018 at 7p a share and it has since fallen to 3.9p as of this morning. Again nothing in the RNSes, but the BBs are alive with rumours that some contracts have gone wrong.

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bluecurve 1st Mar 53 of 68

Hi Graham,

Another good write up on Rightmove (LON:RMV). Based on your previous comments I've had it on my watch list for a while and was waiting for it drop below 460p. I think this a good entry point for a long term hold, so picked some up this morning.

I've mentioned this before on this Stocko, but anyone interested in how technology companies forge a winning position over time would do worse that to read the Gorilla Game by Geoffrey A. Moore. It's an oldy from 1999, but still relevant. The principles discussed in the book can be applied any tech sub-sector, and I think it has relevance for on-line property portals. Partly down to this book, I tend to agree with Graham's thesis that Rightmove will continue to forge a market-leading position which gives it pricing power and long-term earnings visibility.

I'm also a property investor and use Rightmove extensively. Zoopla has pretty much died from my sight, and Onthemarket (LON:OTMP) is too sparse and basic at the moment to provide a realistic alternative. I find that the agents who use On The Market in the areas I invest also use Rightmove, so my use of On The Market will probably decline unless they offer any additional benefits over Rightmove, or have properties not available on Rightmove. I suspect that usage profile will be played out by millions of other users over the next few years.

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sharmvr 1st Mar 54 of 68

In reply to post #453613


I would suggest your inability to read implies that you might be the one smoking something you shouldn't - not judging!

Pasted below - try reading it again - I certainly remember in my student days, I often had to read things twice!!
No position in Rightmove (LON:RMV), Gocompare.Com (LON:GOCO), £ IGG

"Since RMV is already so much bigger than its competitors, and has grown its market share in a growing market, the 2018 increase in minutes spent on its site has massively outstripped the increase at its competitors. The increase in time spent on Rightmove is 8x larger than the increase in time spent at any of its competitors.
The market may have been disappointed that the number of Agency branch customers fell by 2%, as some agents show resistance to Rightmove's pricing power and look for alternatives such as Onthemarket (LON:OTMP).
The total number of customers has increased again, though, as more New Homes vendors signed up.
The reduction in the number of agents is a slight disappointment but it's not enough to wipe out my overall positive view of these results. Higher prices and higher revenues can occassionally mean slightly fewer customers. Other companies I own sometimes maximise profitability at the expense of the total size of their customer base, e.g. Gocompare.Com (LON:GOCO) and IG Group (LON:IGG)."

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Camtab 1st Mar 55 of 68

Hi interested in thoughts on Airea. My numbers are showing revenue at perhaps £26m with Operating Expenses £24m. Showing op prof around £2m.. 41.4 million shares in issue so that is rough 4.8p eps. James Halstead have a rating of around 20 times which would make these shares worth around 96p. That said 20 is a bit spicy so I would rather use say 14 which actually puts them in line about now. Another thought is op profit margin at James Halstead is 19% over 5 years. Revenue of £26m puts that at £4.9m. Accepted costs understated but that would suggest £1+. Would welcome anyones thoughts on this attempt to put some reason into the share price, as no broker coverage.

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lemonjar 1st Mar 56 of 68

I was interested to read matylda's note on AFH Financial (OFEX:AFHP) this morning, I've taken the liberty to repost here, I figured @matylda you wouldnt mind! I decided to dip a toe with a small stake this morning, any views Graham much appreciated as always!

AFH Financial Group ( AFH Financial (OFEX:AFHP) ) – 336p – £142.8m – PER 10.3

AGM Statement – 5th year of improved profitability, record Revenue of £50.7m (up 51%), EPS up 43%, the Dividend is up 50%. Complete 16 accertive acquisitions, continuing to implement operational efficiencies through scale. Current year trading remains in-line with expectations with 4 acquisitions in the first 4 months.

I am Long here and in-line will do for me, forecasts for in Revenue and EPS to increase again 40%+ this year (on almost a single digit PER!)

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FoolishBen 1st Mar 57 of 68

Chris - Here is a pretty good overview of what's been going on with Versarien (LON:VRS) recently. There is also an IG interview with the CEO at the bottom. I hold and have following closely. I don't believe anyone outside the company knows anything above and beyond what is public knowledge.

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rhomboid1 1st Mar 58 of 68

In reply to post #453678

Hi Camtab

I’ve held Airea (LON:AIEA) since 2015 & it’s now my largest all that time I’ve found it impossible to forecast as it’s been an amalgam of Ryalux & Burmatex, freeholds & progressively surrendering leaseholds. On March the 7th we’ll get the first ‘clean’ set of purely Burmatex purely freehold site + the one much improved freehold investment property let out at c£300k per annum. It’s also the first set of results that encompasses some of the new ranges the acquisition of the US made mega-loom has allowed the designers to get creative with whilst also giving them access to lower price point ranges at full margin.

So after then I’ll happily attempt a forecast but in the meantime I am happy to hold fire....I think this is an early stage James Halstead (LON:JHD) with a long growth runway ahead...not least in export markets so worthy of a high rating imho

So after March 7th forecasting will become a meaningful exercise

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Camtab 1st Mar 59 of 68

In reply to post #453703

Many thanks Rhomboid1. much appreciate your response. I have recently been reading your Twitter postings which are most interesting. Congratulations.

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Steves cups 1st Mar 60 of 68

Many thanks for the interview with Neil Johnson of Duke Royalty (LON:DUKE). You covered many of the areas that I spoke to him about at the Growth & Innovation Forum but in more detail which I thank you for. Interesting his take on the "quicker growth though equity placing rather than use of internal cash vis a vis dividends".
Wish we could all get a sweetener like the equity stake!!

Thanks again

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xcity 1st Mar 61 of 68

I have always read Revolution Bars (LON:RBG) posts with interest Although I have never been temptedto actually buyshares, I did go to look at a local branch so that I was kew what the business was.

afaics. the detailed info out today is a much more professional effort than previously. It is also a massive indictment of previous management pretty well throughout the recent history of the brand. I particularly note the heterogeneity of the premises sufficient to recomment a segmented offer. I'm still not sure that they are on top of cash flow or profitability. It's good that they are working to keep staff and customers happy, but not good that it's necessary and they cannot be clear about the cost. afaics the overall concept is good, but I have no idea how profitable it can really be over time.

Hard to avoid the thought that the previous MO was to grow fast, create a buzz and sell out before the proverbials hit the fan.

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narp 1st Mar 62 of 68

In reply to post #453688

Re Versarien,

At the bottom after the video in the article it says the author was remunerated and does not hold any shares. The text is shaded such that it can be easily missed.

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coniston 1st Mar 63 of 68

Intresting,Gvc,Teff,would fall into high ranked stocks, going back 15 months most of the stocks mentioned( 28),not included sruce or atlntis.20 of those were either super stocks /high fliers ,other eight fell into 1 contrarian.1 mom trap,1 falling star,1 value trap,1 sucker stock,2 17/18% ( 5 stocks) would of warned us of potential trouble ahead,while 72%( winning styles) would of lost you quite a bit of money.Be very keen if Ed & the Team can maybe throw a more detailed analysis behind it ..

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clarea 1st Mar 64 of 68

In reply to post #453363

Hi Timarr

Apologies in advance as I'm always looking to pick your brains but add XLM to the list I've been burned twice by this one now once when it dropped June last year sold on a loss got back in a few weeks ago and sold again on another 30% loss. The upside was I scale into investments so only lost on the initial stake. It's been well highlighted on Stocko re the overseas aim issue and fact that the price flat lined even allowing for the big daily buybacks and like Plus cashflow seems real as they pay decent divi. I'm just wondering if theres any other red flags you have seen with this one ?

Re the profit warning guide the stock seemed to be re-basing around the mid seventies six months on which ties in with the Stocko stat's that most stocks take about six months to stabalise.

Thanks in advance


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Luthrin 2nd Mar 65 of 68

It seems likely that we have a forced institutional seller in the market at present, which would almost certainly account for some of the abrupt falls we saw last week in several relatively illiquid AIM stocks.

A Reuters report on Wednesday revealed that City Financial has filed a notice of intention to appoint an administrator, a protective measure which prevents a third party from commencing legal action. According to a lawyer cited in the report: "Shortly after filing such a notice, the firm would either need to transfer management of its funds to another manager or close the fund and return cash to investors".

The top ten equity positions in the City Financial Absolute Equity Fund at 31 Jan 2019 can be found in its monthly factsheet, and full holdings at 31 October 2018 can be found in this interim report. As an example, the fund held 104.7m shares in Horizonte Minerals (LON:HZM) at 31 Oct, and yesterday Horizonte's share price fell 11.2% on highly abnormal volume of 74m. Another one is Somero Enterprises Inc (LON:SOM) , with 1.4m shares held by the fund at 31 Oct. On Thursday, Somero's share price suddenly fell sharply towards the end of trading with 1.63m shares ultimately traded against normal daily volume of 10k - 50k.

As the fund's full holding details are now several months out of date, it's not clear what remaining overhang there may be from City Financial's presumed stock dumping, but it's maybe something that investors should be aware of over the coming week.

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Howard Adams 2nd Mar 66 of 68

In reply to post #453918

Hi Luthrin

Very useful post, many thanks for the link to the interim report to show the listing of their holdings albeit Oct 2018. Some quite nasty exposures I fear.


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Dave_17 2nd Mar 67 of 68

Can anyone confirm how realistic the Rightmove (LON:RMV) statement of "RMV is not materially affected by the property market cycle except in the most extreme circumstances" really is. I guess it's because of the way estate agents pay Rightmove, but I can't see how they can't avoid being materially affected by property market. 

It's not about Graham's reporting, more what Rightmove are suggesting. I'm not saying they are wrong, just trying to work out what I'm missing as I'd assumed Rightmove performance would be in sync with the market and any downturn would impact performance and share price.

Maybe it's the interpretation of "materially affected" :)

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kenobi 11th Mar 68 of 68

In reply to post #453983

I guess the point is that it's a subscription service and they're in the box seat as the biggest portal, so unless agents go bust, or new ones don't join, or they cancel, their revenue won't fall.
Of course in a down turn, some of all of the above will happen, so then we get down to what material is, and how big the downturn is. I don't know but I would guess the majority of agents are on rightmove, and if they're not now they are unlikely to be in the future ? But then on the other hand, selling houses is easy in a boom, perhaps some would be more inclined to join if they were struggling to sell properties ?

I guess to a degree they are insulated from cycles by their monopoly position, but they will have less pricing power in a slump that's for sure. At some point the end game for rightmove will be to do private sales, that's probably where they get their next boost in profitability.


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 Are LON:DUKE's fundamentals sound as an investment? Find out More »

About Graham Neary

Graham Neary

Full-time investor and independent analyst. Editor at Cube.Investments, small-cap writer at Stockopedia. Previously a fixed income analyst in the City and institutional fund manager. I'm a CFA charterholder and have the Investment Management Certificate and STA Diploma in Technical Analysis for good measure. When I'm not talking about finance, I enjoy recreational poker, chess and Mandarin Chinese. more »


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