Duke Royalty (DUKE:23p), 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 issued results for the 12 months to 31 March 2020. They reveal the short-term financial hit from the Covid-19 pandemic on the portfolio, and the opportunity, too.
The company booked non-cash write-down of £12.6m on its royalty portfolio and a £2.9m impairment on its loan book. Adjust for these write-offs and adjusted earnings rose from £3m to £5.2m to lift earnings per share (EPS) by a third to 2.44p. The higher earnings reflect £20.4m worth of new investments which helped Duke deliver a 65 per cent rise in net operating cash flow to £6.8m (3.17p a share) and free cash flow of £5.4m (2.5p).
In the final quarter of the financial year to 31 March 2020, Duke generated cash receipts of over £2.8m, representing a normalised pre-COVID trading environment. Receipts then declined to £2m in the first quarter of the 2020/21 financial year due to the impact of the lockdown and the decision to assist some royalty partners by allowing them to defer royalty payments, hence the impairment charges. However, as lockdown restrictions eased, Duke’s royalty partners have experienced a significant upturn in trading.