DUKE ROYALTY (DUKE) – 26.5P
Those readers looking for an AIM share tip which would seem to have significant recovery potential could do worse than invest in DUKE ROYALTY. It will probably come as no surprise to readers to learn that the share price has more than halved this year, falling from a high of over 50p at the start of the year to a low of 17.5p in April. Although the share price has rallied subsequently, it still stands at just over 50% of the 2020 high, and the positive trading statement released last Thursday indicates that better times may lie ahead.
Duke Royalty is an unusual company operating in an interesting niche market, providing royalty finance to companies in the UK and Europe. The business of royalty finance is well-established in North America, notably Canada, and the founders of the business decided that the business model could be replicated over here. Essentially, the business provides finance to SME’s in exchange for a percentage of the latter’s future revenues. This allows the business owners to retain control over their company as Duke does not take an equity stake whilst also providing the business owners with another source of capital. There is also no refinancing risk as the royalty payments made by the borrower include both principal and interest and these repayments are made over the long term.
Last week, the group issued a trading statement including the news that it intends to pay a dividend of 0.5p per share foe the upcoming quarter, which covers the three month period to 31 December. The group had 12 royalty partners at the start of the pandemic and seven of these have maintained their monthly cash payments to Duke throughout the period. Four of the five royalty partners who entered into forbearance agreements have now resumed payments and in some cases this has resulted in Duke taking equity stakes in the businesses in lieu of the payments that were not made.
In last week’s statement, the company also confirmed that it has substantial capital to deploy and, with the current outlook for SME’s being challenging, this is expected to provide significant investment opportunities going forward. BUY.