Duke Royalty reports record quarter of cash revenue generation
Alternative capital provider Duke Royalty updated the market on its trading and operations on Thursday, reporting cash revenue for the third quarter of £4.2m, representing a record quarter of cash revenue generation for Duke.
The AIM-traded firm said that, within that £4.2m, £1.7m related to the receipt of the redemption premium generated from the exit of Welltel in December.
Once that positive effect was stripped out, like-for-like cash revenue for the third quarter stood at £2.5m - in line with management expectations, and an increase from the £2.4m reported in the second quarter, and the £2.0m in the first.
An internal rate of return of 27% was generated from Duke's investment in Welltel, which was its largest investment, and was the second exit of a royalty partner.
Based on current trading, Duke said it expected cash revenue for the fourth quarter to be £2.5m, despite Welltel contributing no cash revenue in the period.
Prior to exit, Welltel was delivering quarterly cash revenue of £0.45m.
Duke also announced two separate follow-on transactions in December, which included investments into MRDB Holdings and BHPC.
As a result of the Welltel exit, the two new deployments in the third quarter and the Step Investments deployment that closed in early January, net debt currently stood at £5.6m, significantly below the £14m announced on 12 November.
That, the board said, provided Duke with considerable liquidity for new investments.
On 12 January, Duke announced the appointment of Peter Madouros as group chief investment officer, in line with its planned succession strategy whereby current CIO Jim Webster would take up the role of chairman of the investment committee.
Duke said its pipeline remained “strong”, with management “confident” of being able to announce additional follow-on as well as new deployments in the near future, in line with market expectations.
“I am pleased to report that cash revenue has continued to increase in the third quarter, in comparison to the second quarter, testament to the resiliency of our portfolio,” said chief executive officer Neil Johnson.
“In the quarter, Duke achieved one major exit and made two follow-on investments, while also expanding the investment team through the appointment of Peter Madouros as CIO.”
Johnson said that, while the macro environment remained highly volatile, the pandemic had also presented Duke with a “significant” growth opportunity.
“Banks have been tightening SME lending criteria ever since the global financial crisis and demand for more flexible, alternative sources of capital remains very strong.
“As a first mover and leader in the UK and European corporate royalty space, Duke has a significant opportunity to build and further diversify its portfolio.
“Importantly, we have significant liquidity available for new deployments, which adds to our high level of confidence as we enter 2021.”
At 1406 GMT, shares in Duke Royalty were up 1.21% at 27.12p.