Duke Royalty (DUKE.L), which provides royalty finance to companies in the UK and Europe, told Yahoo Finance UK it has secured £16.1m ($19.52m) from new and existing institutional investors and is aiming to raise another £3.9m when it opens a retail offer later today.
Neil Johnson, CEO of Duke Royalty, also told Yahoo Finance UK that “the political headwinds being felt in the UK mean uncertain times, however, near-term uncertainty makes the long-term nature of our capital more attractive to business owners who require capital.”
Duke Royalty invests in small to medium enterprises against future cash flow — royalty financing. Essentially, that type of financing is like a business mortgage and does not dilute shareholder equity. Financing is typically between 25-40 years. It’s like someone saying, “I’ll give you a loan now to invest in your company and you’ll pay me a slice of your cash pile when you start bringing money in.”
It’s a new concept in the UK but is a lucrative market in Canada — it’s a sector worth $50bn (£41bn).
But while Brexit uncertainty has provided a backdrop for Duke Royalty to flourish, it is the sizeable dividend — the return for stock investors — and growth potential that has got investors to bite.
In the year ending 31 March (revealed in September), it hiked its dividend by 33% to 2.8 pence per share and posted an annual profit for the first time — posting a pretax profit of £1.9m, up from a loss of £858,202 the previous year. This is because of the jump in total income to £6.1m, from £1.8m. Duke’s asset gains also increased to £5.9m, compared with £1.6m the previous year.
“We are delighted with the support new and existing institutions have shown for our strategy to enhance the robust, predictable, long-term returns we have demonstrated for shareholders. In addition, we are pleased to be able to offer non-institutional shareholders the ability to join the register through the launch of a Retail Offer and direct subscriptions, and we will provide an Open Offer for all existing shareholders. This will enable private investors and family offices to subscribe for new shares on the same terms as institutional investors,” said Johnson.
The fundraising proceeds will, together with the previously announced revolving credit facility, enable the company to:
Secure an additional royalty partner which is currently under letter of intent
Facilitate multiple follow on investments within the existing portfolio
Pay down inherited credit facility immediately
Provide funding for the company’s “strong pipeline” of additional royalty partners
“We are excited to continue building the diversification of royalty partners and to support existing royalty partners in their acquisition strategies,” said Johnson.
“Our revolving line of credit means the company can efficiently use our balance sheet to continue to deploy capital. Royalty finance businesses been proven over market cycles to provide both income and capital gains to public shareholders due to the long-term predictable cash flows they deliver, and we look forward to continuing to build our business for the benefit of our shareholders.”