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High-yielding Duke Royalty on the money

The niche finance provider has restructured some of the royalty agreements it acquired three months ago, a move that is highly supportive of the progressive dividend policy
June 3, 2019

Duke Royalty (DUKE:46.2p), a company that makes its money by providing capital to companies in exchange for rights to a small percentage of their future revenues over a typical term of 25-40 years, has made two smart announcements in the past few weeks.

Having acquired a small portfolio of royalty partners pursuant of its acquisition of smaller rival Capital Step in February this year, Duke has subsequently modified the terms of existing agreements with three royalty partners: Pearl & Dean Cinemas; Xtremepush, a technology solutions company; and Welltel, a Dublin-based telecom services company that has been the winner for the past five years of the Deloitte “Fast-50” award, an award given to the fastest growing technology company in Ireland

Prior to acquisition, Capital Step offered a 'unitranche' finance product, which is a perpetual royalty paired with a senior secured loan that amortises over a three- to five-year term. A total of £5.5m of capital deployed amongst the three royalty partners was due to be repaid by 31 March 2022. However, by modifying the repayment terms, Duke has been able to boost the gross revenue it will earn by at least £3.7m over the next five years, representing a 25 per cent increase, and importantly at nil cost. To achieve this it has extended the repayment maturity date to April 2024 on the Welltel and Xtremepush senior loan facilities, and agreed to a perpetual royalty on the whole of the Pearl & Dean agreement, half the royalty had previously amortised over three years and the other half in perpetuity.

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