Good morning!

We have plenty of candidates for coverage today.

In the end I covered:



Duke Royalty (LON:DUKE)

  • Share price: 44.5p (-3%)
  • No. of shares: 198 million
  • Market cap: £88 million

Final Results and Notice of AGM

(Please note that I currently hold DUKE shares.)

Duke is "the first UK quoted non-resource royalty investment company", i.e. it's an unusual type of investment vehicle. It provides financing to small businesses and in return it receives a long-term income stream that varies in accordance with the revenues of the underlying businesses.

This is "mezzanine finance" - riskier than lending, less risky than buying an equity interest. I've discussed the business model plenty of times before so if you're interested, I'd invite you to check out the archives!

These results are for the year ending March 2018. They are pretty much irrelevant in my view, given how much has happened at Duke since then.

Some investors might be disappointed with the loss announced today but I agree with the company's view that its accounting treatment is a little bit harsh.

The underlying business model is simple: Duke puts big chunks of money into businesses and gets a strong, variable cash yield in return (e.g. starting at 13%).

Cash flow is then used to pay dividends or reinvest. Personally, I would be happy if the company would reinvest as much as possible, to enable it to compound and diversify as quickly as possible.

Plenty of investors do want income, however. The quarterly dividend at Duke is now 0.7p and the company's intention is that this will be "stable and increasing". In FY 2018, Duke achieved slightly better than its initial target of a 5% yield (2p) on the 40p placing price.

The real test will be whether the company can achieve the promised cash flows in the years ahead. It's still too soon to say whether the company can achieve its goals.

Keeping costs at a reasonable level will also be important. Duke is headquartered in Guernsey and has very few employees, so it should be possible to contain costs in such a way that shareholder returns…

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