Small Cap Value Report (Wed 19 June) - DUKE, QTX, MUL, BOOM, SAGA

Wednesday, Jun 19 2019 by

Good morning! 

What's on the agenda today:

Duke Royalty (LON:DUKE)

  • Share price: 47.85p (+2%)
  • No. of shares: 200 million
  • Market cap: £96 million

Dividend Declaration

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

Duke keeps its quarterly dividend flat at 0.7p. This will be the fifth consecutive payment at this level.

Based on 200 million shares outstanding, this comes at a cost of £1.4 million annually.

For context, Duke generated operating cash flow of £1.3 million in H1 this year, from £1.8 million of royalty receipts.

At Mello, I again expressed the view to Neil Johnson (CEO) that compounding wealth inside Duke would be the best way to grow shareholder wealth. So I am happy for Duke to keep the dividends flat, even if it could afford to be more aggressive with them at this early stage.

The trailing yield based on these flat quarterly dividends is 6%. Some shareholders think that this yield should compress as the business model proves itself over time and diversifies. The share price should gradually increase to bring the yield down to 5%, for example.

If we get an increase in quarterly dividends (which should be affordable, in due course) and a compression in yield, that would be a double whammy for the share price.

I plan to wait and see what the company achieves over the next year or two, before making any change to my current position.

One of Duke's brokers recently forecast that the dividend per share for the current financial year would be 3.6p. For this to be achieved, I think the next dividend would need to be increased. 3.6p per share represents a forward yield of 7.5%.

An adventurous financial stock carrying significant risks, but I'm optimistic about this one.

Quartix Holdings (LON:QTX)

  • Share price: 277p (+9%)
  • No. of shares: 48 million
  • Market cap: £133 million

Trading Update

The market loves this update.

H1 is running ahead of expectations and Quartix says it will make at least £25 million…

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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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Quartix Holdings plc is a United Kingdom-based supplier of vehicle tracking systems and services. The Company operates in designing, development and marketing of vehicle tracking devices and the provision of related data services segment. The Company offers subscription-based vehicle tracking systems, software and services in the United Kingdom. Its vehicle tracking systems incorporate instrumentation to identify and transmit location, speed and acceleration data to the Company on a real-time basis. Its vehicle tracking software system provides business critical reporting, and analysis of vehicle and driver data, including timesheets and other customer Key Performance Indicator (KPIs) to customers via any Internet-enabled device. The Company has an overseas branch in France and an overseas subsidiary in the United States. The Company's subsidiaries include Quartix Limited and Quartix Inc, which are engaged in the business of vehicle tracking. more »

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Mulberry Group plc designs, develops, manufactures, markets and sells products under the Mulberry brand name. The Company operates through two segments: Retail and Design. The Company's Retail segment includes sale of Mulberry branded fashion accessories, clothing and footwear through a range of shops and department store concessions. The Company's Design segment includes brand management, marketing, product design, manufacture, sourcing and wholesale distribution for the Mulberry brand. Its product range includes women's wear, accessories and footwear. It offers products under various categories, including leather accessories, such as bags; small leather goods; shoes; soft accessories, and women's ready-to-wear. The Company distributes its products through over 120 stores in approximately 30 countries; its digital site,, and selected wholesale partners. The Company has operations in the United Kingdom, Rest of Europe, Asia, North America and Rest of world. more »

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

28 Comments on this Article show/hide all

barney100 19th Jun 9 of 28

In reply to post #484851

Hi Graham,

A couple of points WRT Duke Royalty (LON:DUKE)

1. I'm a little concerned about the manner in which new investments seem to have slowed up since the CS acquisition, did Neil Johnson provide any insight into this in your conversation?

2. Could you elaborate a little on why you still consider Duke Royalty (LON:DUKE) such a "significant risk", surely as the company grows and the portfolio of investment diversifies (subject to the above) the risk is mitigated or are you referring to other risks?

Thanks as always for such a well informed report

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johnv 19th Jun 10 of 28

In reply to post #484796

Hi Howard, futr will join the ftse250 on Monday.

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nicobos 19th Jun 11 of 28

In reply to post #484796


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nicobos 19th Jun 12 of 28

In reply to post #484791

Brave Bison (LON:BBSN)

Tangent Marketing Services (who I'm assuming know a thing or two about marketing) have just taken a 19% stake in Brave Bison (LON:BBSN) so I assume there is some value there to those who know the industry.

May be worth a punt as a takeover candidate perhaps!?

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Howard Adams 19th Jun 13 of 28

In reply to post #484861

Hi johnv

Thanks I wondered why Future (LON:FUTR) had not listed as a 'faller' in the FTSE 250 listing on HL.


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Howard Adams 19th Jun 14 of 28

In reply to post #484871

Hi nicobos

Thanks for the Future (LON:FUTR) posting, useful insights.


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mojomogoz 19th Jun 15 of 28

In reply to post #484876

I guess that's taking Woodford's 18.7% stake off him. I wonder what the scalp was?

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sharmvr 19th Jun 16 of 28

Morning Graham and all,

Was hoping time allowing, you would be kind enough to take a look at Saga (LON:SAGA) (looking very interesting from a valuation perspective) and ECO Animal Health (LON:EAH) - very different companies if that entices you any!

Saga AGM statement broadly in line - so lets say 5p in EPS or 70m in profit - we are looking at 6x earnings.
Their new insurance product seems to be gaining traction, Free cash should improve since they no longer have a ship to build, positive demographics in target customer and cruises are growing in popularity.
Debt is the concern but at 3x operating cash is manageable and repaid fairly easily if they cut / stop the dividend, which call me crazy, but at a 13% yield, is I am guessing not sustainable - very rarely is the market that wrong!

EAH Final results - in line with forecasts, but the market seems to have liked.
Have no expertise in the swine vaccination sector, but diversified and global revenue base, and strong margins. Generally it seems like a nice company but for me major issue is the amount tied up in working capital and is on an increasing trend. A red flag even!
Seems quite capital intensive, taking up some 60% of operating cash and shows in ROCE.
That said, valuation is far more attractive now than it has been in a while.

Many thanks,

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jwebster 19th Jun 17 of 28

In reply to post #484851

omg - we do have the same name

I still have more hair than him though !

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rmillaree 19th Jun 18 of 28

ECO Animal Health (LON:EAH)
I think EAH are between a rock and a hardplace if you look at things from a traditional metrics viewpoint. They have to invest now to get an uncertain income amount at an uncertain point in the future. Their investing in intangibles is probably the same as another companies investing in premises or plant and machinery. On top of that they need inventories and they need to give decent terms to customers. The reversal is well in the future when management pimp the cashflow (hmmmmm does that aver happen with standard plc megalomaniac) from the earlier years investments.

I was happy to pay top dollar for some shares a while back (i need some diversification into this sector i thought) as they had good consistent growth (with the odd wobble) and forecasts going forward for a similar trend going forward. I would say then haven't quite delivered on the lofty expectations and the share price has been hit very hard from the peak. That's the risk paying top dollar for what you think is a sound company - at least i didn't pay anything like the 600p they were at their peak.
Looking at the last 12 months EPS estimates have dropped from 22p to 20p - so 10% lost from expectations 12 months ago presuming todays figures are on track. I think it was similar the year before

Anyway i continue to hold - at least the multiple is a lot more reasonable now so they have less lights to shoot out to stem any future share price woes.

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snaj 19th Jun 19 of 28

In reply to post #484856

May I ask if anyone knows whether or not Duke Royalty (LON:DUKE) is expected to qualify for business property relief? My initial thought was that it probably doesn't, but will be interested in opinions of others.


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doublelutz 19th Jun 20 of 28

In reply to post #484971

You can't claim if the company activity is one of making or holding investments so I would have thought it would be disqualified by that.

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doublelutz 19th Jun 21 of 28

In reply to post #484916

My problem with Saga (LON:SAGA) is whether they have a good business that will retain customers. It is supposed to cater for the over 50's and one might expect it to have some special offers for such people. However, having had insurance with them in the past I have found in recent years that I have always been able to obtain it much cheaper through the price comparison sites. Added to which we had travel insurance with them and when my wife got cancer (recovered now) they would not touch it until she had been clear for two years and we were forced to go elsewhere. Now I would have expected their older customers to be the ones most likely to have cancer but they were not even prepared to quote. It didn't stop them continually e-mailing to ask me to take out insurance after they had told me they couldn't consider it! Hopefully, for them their new cruise ships will generate greater customer satisfaction. I suppose the share price is now so low there must eventually be value but they are not a company in which I feel compelled to invest.

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Graham Neary 19th Jun 22 of 28

In reply to post #484916

Hey V,

Sorry that I'm a newbie when it comes to analysing Saga (LON:SAGA). Now that it's firmly in small-cap land, it might get regular coverage in this report going forwards. ATB! G

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JamesrWilson1989 19th Jun 23 of 28

No news really, but anyone in the know about what's going on with Goco (LON:GOCO) ? big shoot up towards the end of trading and now +10% on the day.

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Graham Neary 19th Jun 24 of 28

In reply to post #484856

Hi Barney, can't provide any info on deal flow, sorry. My impression of the investees is that they don't have much equity value after taking into account the agreement with Duke, and I expect there will be some mishaps. The diversification is improving but has a long way to go. Cheers! G

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Graham Neary 19th Jun 25 of 28

In reply to post #485001

James, the rumour mill be might be whirring again. Richard Bernstein from Crystal Amber tweeted today:

"Keeping a close eye on the Go Compare share price: a 6% jump in the last few mins of trading yesterday. Last year, GoGo rejected a takeover approach , following the previous rejection of Zoopla's 110p bid. With global interest rates tumbling, PE must be re-running the numbers."

I hold Goco (LON:GOCO).


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Howard Adams 19th Jun 26 of 28


For those who were interested, and followed the share price moves of Future (LON:FUTR) mentioned in earlier posts.

This is an article published by Shares magazine 13/06/19. They have kindly taken the paywall off this piece.


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JohnEustace 19th Jun 27 of 28

In reply to post #484991

Agree on Saga (LON:SAGA), their business model appeared to rely on their older customers not being savvy enough to shop around. Perhaps that was once the case but not so much now, especially when the regulator makes them put statements in their renewal letters that basically say "You've been with us for a while so we're probably ripping you off and you should look elsewhere"

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woodcub 19th Jun 28 of 28

In reply to post #484971

Re Duke Royalty (LON:DUKE) and BPR, Royalty funding is probably an alternative form of debt financing, so they are not strictly an investment company, so it is likely they do qualify for BPR. If you really need to know then get in touch with them for clarification.

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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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