Duke Royalty (DUKE:47.5p), an Aim-traded 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 reported a robust set of annual results and a new credit line that has prompted analysts to material upgrade their forecasts.
Having raised £44m of new equity capital in the summer of 2018, and subsequently acquired its only known competitor, Capital Steps, Duke Royalty trebled the number of royalty partners to 12 in the 12 months to 31 March 2019. The company has since posted record quarterly cash revenue in the first quarter of the 2019-20 financial year. Including follow-on investments made since the financial year-end, the royalty portfolio is currently worth £74m at current exchange rates, of which €25.37m (£22.75m) is invested in European companies.
The terms of these agreements stipulate that in the first year the royalty partner typically pays Duke Royalty a monthly distribution or royalty equal to 12-15 per cent a year of the financing amount. In the second year, and each year going forward, the monthly distribution is then linked to the year-on-year growth in the revenue of the royalty partner collared at 6 per cent a year of the total increase or decrease in the royalty partner’s revenue over the prior year.