Small Cap Value Report (Mon 24 Sep 2018) - DUKE, MGR, XLM, XPD

Monday, Sep 24 2018 by

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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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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Miton Group plc, formerly MAM Funds plc, is an investment management company. The Company provides fund management services. Its funds are invested in a range of asset classes under various investment mandates, including multi-asset, equity and portfolios of collective investment schemes. Its product range includes equities, such as CF Miton UK Multi Cap Income Fund and FP Miton Income Fund; multi-assets, such as CF Miton Cautious Multi Asset Fund and PFS Miton Cautious Monthly Income Fund; fund of investment trusts, such as CF Miton Worldwide Opportunities Fund, and closed-end funds, such as The Diverse Income Trust plc and Miton Global Opportunities plc. Its subsidiaries include Miton Group Service Company Limited, which is a holding company and central services provider; PSigma Asset Management Holdings Limited, which is an intermediate holding company; Miton (Hong Kong) Limited, which is a marketing company, and Miton ESOP Trustee Limited, which is a trustee company. more »

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XLMedia PLC is the United Kingdom-based online performance marketing company. The Company focuses on paying users from multiple online and mobile channels and directs them to online businesses who, in turn, convert such traffic into paying customers. The Company's segments include Publishing, Media and Partners Network. The Company owns over 2,000 informational Websites in approximately 20 languages. Its Media division acquires online and mobile advertising targeted at online traffic with the objective of directing it to its customers. It buys advertising space on search engines, Websites, mobile and social networks and places advertisement referring users to its customers Websites or to its own Websites. It manages marketing partners, whose role is to direct online traffic to its customers. Its partner program enables affiliates to have a single point of contact for directing traffic. more »

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

30 Comments on this Article show/hide all

fwyburd 24th Sep '18 1 of 30

Good morning Graham,
I'd love to get your views on Spectra Systems (LON:SPSY) half year results today. They look amazing ($3.8m PBT), cash up at at $12.3m, no debt and a great dividend yield. I hold



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MrContrarian 24th Sep '18 2 of 30

My morning smallcap tweet:

Avanti Communications (LON:AVN), Fireangel Safety Technology (LON:FA.), PHSC (LON:PHSC), Cyanconnode Holdings (LON:CYAN), Versarien (LON:VRS)

Avanti Communications (AVN) wins wholesale capacity sale worth $12m PA over 7 years. Starts in a year.
FireAngel (FA.) wins exclusive supply of smoke and heat alarms to St. Leger Homes which works in partnership with Doncaster Council, providing housing services in the social and private sectors across over 22,000 properties.
PHSC (PHSC) AGM stmt. 4 months to end July rev £2m and EBITDA £125k (£2.4m and £134k). Rev fall due to discontinuation of asbestos consultancy business, and lower income related to retail security products and services. Expects to net £290k from sale of property previously occupied by the asbestos management business.
CyanConnode (CYAN) wins $2.9m five-year support and maintenance contract for the Omnimesh smart metering sale announced last week.
Versarien (VRS) raised £5.2m (more than planned) at 145p via PrimaryBid.

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wildshot 24th Sep '18 3 of 30

Any views on XLMedia (LON:XLM) please? It has been covered a few times before on here. Revenue (as forecast) is down, dividend is down. The results emphasis the move towards higher margin websites and there is also mention of using borrowing facilities when the net cash position of this share has historically been a big plus for me.

The interim results say that they are on target to meet expectations (?) for the full year.

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gus 1065 24th Sep '18 4 of 30

Strong set of half year results from fund management group Miton (LON:MGR) this morning.

Keeps coming up on a couple of QM based screens I run and looks to be performing very well. Interested in views on Spectra Systems (LON:SPSY) too.


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Camtab 24th Sep '18 5 of 30

Just a note on the raising by Versarian this weekend. Paul has always been keen on companies looking to support the retail investor in these raisings and Primary Bid seem to be a convincing answer to the problem. Neill Ricketts, Chief Executive Officer of Versarien, commented:
"We are very encouraged by the tremendous demand generated on the PrimaryBid platform in such a short period. PrimaryBid's innovative platform allowed us to seamlessly access retail investors at the same time and terms as institutional investors. Retail investors remain an important constituent to us and we are pleased to have allowed them access to this fundraise."
Capitalism working well.

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mw8156 24th Sep '18 6 of 30

any thoughts on INSTEM welcomed.

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fredericktug 24th Sep '18 7 of 30

XLMedia (LON:XLM) please. Took a small spec position after the June TA which saw the shares fall from 170 ultimately to a recent low of 87p. I think my own position is that of sceptically awaiting developments and better news. Whilst I like a good divi (who doesn't?), and don't like a reduction, if it is part of a super growth strategy, I can live with that. But is the growth coming, or this this going to be an acquisition spree?

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sbotting 24th Sep '18 8 of 30

Coverage of Pennant International (LON:PEN) would be welcome, interims out today.

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iwright7 24th Sep '18 9 of 30

Miton (LON:MGR) looks like a great set of results with 91 SR. Libertum suggests a 2019 ex cash P/E of 10.5x undervalues the company and I can't help but agree. Ian

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sheeza 24th Sep '18 10 of 30

I've just sold out of Duke Royalty (DUKE). I hadn't realised how many of it's 'partners' were in the same line of business. To me, it begins to look a little 'ponzi-ish'.

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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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