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

myayield 1st Mar 9 of 68

I am slightly new to this but was wondering why RBG share price drifted down to 80p beginning of the week. I have read the interim statement - the board looks like they are taking various steps to address their problems, or am i being naive in some way?

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barnetpeter 1st Mar 10 of 68
8 many previous holders I was delighted to get an offer of 200p and the shares went to around 233p on thoughts of a rival bid.The bizarre rejection was a shock and management were not ready for I thought at the time.

These results are not great to say the least and I don't see much value here. Would the major shareholders now take 1 pound as a takeover offer? They might. Clearly now too small to stay independent; in my opinion anyway.

They did a review recently and "key findings of the research were as follows:

1. Revolution brand is not delivering on customers' value
equation of price, quality and experience.
2. Speed of service is a key frustration from current users.
3. Customers are craving experiences and associate Revolution
with 'fun', providing us with a real opportunity to deliver
these experiences though on-site events.
4. There has been a lack of innovation on food and drink menus
to keep up with consumer demands.
5. The Revolution estate is varied and may benefit from a
segmented offering".

Paul Scott has been pointing some of these issues out for some time why has little changed? Trying to cut staff numbers rarely works in a bar.....some people will simply move on if they cannot get served.

Currently no position but always think someone can make this tempted at 50-60p levels (although I can easily see this in the 20 pence levels if business starts to badly fall away).

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timarr 1st Mar 11 of 68

Just wondering how many popular stocks have now suffered significant falls? Of the top of my head:

And that's even without mentioning Patisserie Holdings (LON:CAKE) and Staffline (LON:STAF) - probably some more I've missed. There's a theory somewhere that the more a stock is discussed on bulletin boards the more likely it is to end up overpriced.  It's hardly a scientific sample, but it does look like a bit of a trend ...

... it'd also be interesting to see how much investors would have saved if they'd sold on the first day of a profit warning compared to now. If I find some time over the weekend I may take a look.

Anyone have any additions to this list?


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doublelutz 1st Mar 12 of 68

In reply to post #453328

RBG was before the takeover offer as high as 230p on expectations that this was a growth company. It has collapsed due to the board hopelessly failing to meet these expectations. They have put forward all sorts of excuses for this and we now have what to me after many years of investment is a new one in "Valentine's Day not coinciding with Wednesday student event"! How can anyone rely on the board to be able to revive the business. It is a gamble. Maybe they eventually will but it sounds as if it will take a long time and it could just as easily deteriorate further.

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jules2k6 1st Mar 13 of 68

In reply to post #453363

Hi Timarr. You could add XLMedia (LON:XLM) to the list.

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fwyburd 1st Mar 14 of 68

In reply to post #453363

I would add British American Tobacco (LON:BATS), Restore (LON:RST), Proactis Holdings (LON:PHD) and Superdry (LON:SDRY) to the list,  and over the last three years, Fulham Shore (LON:FUL), Laura Ashley Holdings (LON:ALY), RhythmOne (LON:RTHM) also come to mind

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MBFP 1st Mar 15 of 68

Thanks for your Duke interview. I listened this morning. I found the interview informative and excellent.
I added to my starter position.


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millen 1st Mar 16 of 68

In reply to post #453363

Yes timarr. Katie Price of Herald made that very point last week in relation to at least one of these stocks:
"The potential scale of those players makes it difficult to value. We were surprised by how strong both shares were, but in IQE's case there was massive private client buying. Not only did that enable us to sell shares too expensively, but it concerned us that a new phenomenon became more evident - that of private client buying influenced by internet chat boards. This buying was not across the board but very stock specific. But private investor demand of this nature, combined with the disappearance of the institutional investor, had made us cautious for the market overall."

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FREng 1st Mar 17 of 68

In reply to post #453363


Your list prompted me to look at Fevertree Drinks (LON:FEVR) which in turn took me to the Beneish M-Score Screen. The qualifying shares there are updated daily (it says) and yet 40 of 44 qualifying shares first qualified on 29-11-2018. That seems startling - am I missing an obvious explanation?

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Edward John Canham 1st Mar 18 of 68

In reply to post #453363

Versarien (LON:VRS)

Well off its peak.

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herbie47 1st Mar 19 of 68

In reply to post #453363

Have they all issued profit warnings?

XP Power (LON:XPP) is down 46%.

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vik2001 1st Mar 20 of 68

with RBG their management is bad and not delivering. Unless they bring in totally new management, or current management adopt a new strategy this share price aint going anywhere but down. the only revival will be a takeover bid if it ever happens. Can see this easily going to 40p or below, so just watching from sidelines.   any further warnings will just tank this share price

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stepone 1st Mar 21 of 68

In reply to post #453388

Don't think BATS was ever a bulletin board favourite. The ADVFN board was quiet as a mouse, it was only when it started falling that the number of comments increased, and now arrive daily, rather than quarterly!

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Graham Ford 1st Mar 22 of 68

In reply to post #453363

Hi Timarr. You could probably add Versarien (LON:VRS) and Blue Prism (LON:PRSM) to the list of much talked about shares that have taken a substantial downturn, although no profit warning at either of those. But I am a bit wary about reading too much into this phenomenon. Wouldn’t a share price increasing much faster than earnings or operating cash flow catch these better than simply the volume of chat?

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jdnthomas 1st Mar 23 of 68

Good results from recruitment business Robert Walters LON:RW. and they have a great track record. No doubt they will do less well in a recession (who wouldn't?) but they don't seem to be very exposed to BREXIT with EU revenues up strongly and matching UK.

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stepone 1st Mar 24 of 68

Crawshaw (LON:CRAW) was another favourite that crashed and burned. A few others that failed to deliver; Indotherm. Atlantis Resources. Sprue Aegis.

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rhomboid1 1st Mar 25 of 68

In reply to post #453403

Hi Millen

I think you’ll find it’s Katie Potts at Herald....Katie Price is many things but I’m unaware of her fund management role at this time...

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Glorenfeld 1st Mar 26 of 68

In reply to post #453363

No additions, but I've often thought it would be a good idea to build a scraper to look at the major boards and generate plots of daily discussion volumes for the most discussed tickers and also to flag tickers for which the rate of change of discussion volume is increasing.

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shailenpatel 1st Mar 27 of 68

In reply to post #453363

Could probably include Air Partner (LON:AIR) and Charles Taylor (LON:CTR)

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davidjhill 1st Mar 28 of 68

In reply to post #453423

Revolution Bars (LON:RBG)

You know that the CEO is brand new right? he's had 6 months in the job and has just finished his strategic review and has been quite clear in what his plan is to turn around the Revolution brand in todays statement. They have changed the Director of Food as that wasn't working too.

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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. Prior to this, I spent seven years in the financial markets as an analyst and institutional fund manager. I'm CFA-qualified, also holding the Investment Management Certificate and the STA Diploma in Technical Analysis.Away from finance, my main interests are recreational poker and everything to do with China, especially Mandarin Chinese. more »


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