Interest rates are well below inflation, It is difficult to find a deposit account of 0.4% or more.Therefore, I previously emphasized some modest large and stable companies Dividend yield Just above the returns on the deposit account, but with reasonable growth prospects. This month, we recommend SMEs with their own business model that can offer much higher yields at medium risk.
The company Duke royalties (Purpose: Duke)Lend money to businesses in exchange for royalties on future sales.It provides finances at a lower cost Private equity It does not take control of the owner as private equity lenders do.
Duke usually offers £ 5 to £ 20m and can make a decision to make the money available in about 8 weeks. Loyalty contracts can be likened to corporate mortgages, where both principal and royalties are repaid over a 25-40 year period. The initial yield on Duke’s investment is 12% to 14% of the capital provided and the loyalty rate is reset up and down each year (6% increase and 6% decrease depending on the client’s sales performance). while). Therefore, Duke will participate consistently. For client growth. The company can repurchase royalties after three years by paying the initial principal and a 20% redemption premium.
Loyalty finance is well established in the $ 50 billion sector of North America, and Duke brought the idea to the UK and Europe. Duke is the only listed British royal family to acquire Capitol Steps, its only UK competitor in 2019. A typical client is a well-established, profitable, owner-managed medium-sized company that wants to expand through acquisitions and acquire minority shareholders. , Or raise funds for management acquisitions from large corporations.
Duke mitigates investment risk by stipulating that royalty payments should be worth significantly less than 50% of a company’s cash flow. Duke wants a company with a sustainable competitive advantage. We aim to avoid start-ups, oil and gas, mining and biotechnology companies and diversify by industry and region. Two of Duke’s typical client companies are the United Glass Group (UGG) and Brightwater Selection. UGG is one of the UK’s leading glass merchants and processors. Duke funded £ 6.5m in April 2018. This allowed us to refinance our existing debt and purchase minority interests in our major subsidiaries. The £ 4.5m second investment facilitated the acquisition of London Architectural Glass and the purchase of free ownership of key facilities.
The hiring company, Brightwater Selection, was a management buyout funded by Duke for £ 1.9m. An additional £ 7.7m was donated to Brightwater in January 2020 to acquire PE Global, Ireland’s leading healthcare and life sciences recruiter. The result of the virus’s last year of Duke until the end of March 2020 was that it had 12 loyalty partners (clients), three of which had significant additional investments, resulting in £ 20.4 million in new capital. Indicates that it was done. Throughout the year.
To raise funds for the expansion, we raised £ 17.5 million in new equity and refinanced the revolving credit line on better terms. The facility has also been increased to £ 30m. Annual cash income increased 91% to £ 10.4m, operating net cash inflows increased 65% to £ 6.8m, and total annual dividend per share increased 5% to 2.95p. Given the 2020 uncertainties regarding the impact of Covid-19, Duke wisely saved cash by paying the first two quarterly dividends of 2020/2021 as 0.5p scrip dividends.
Nonetheless, the latest information on positive trading in the third quarter of 202/2021 showed that the cash position improved and a cash dividend of 0.5p was paid. Results for the year to the end of March 2021 showed net operating cash flow of up to £ 8.94 million, from £ 6.78 million in 2020 and £ 4.11 million in 2019. The 2020/2021 results showed the resilience of Duke’s royal family, including the viral period. model.
Juicy and growing dividends
Duke’s costs are fixed, so increasing revenue is directly linked to revenue. Therefore, there are five new loyalty deals, including a £ 6.2 million investment in Fabrikat (a well-established steel manufacturer) in 2021 and a new € 10 million agreement with the Swiss Fairmed Healthcare Group in June. It is encouraging to see it.
There were even more deals in July, August and September. Further investments are being made in existing partners, including £ 6.5m in UGG to fund another acquisition. The first loyalty partner in North America has been secured. The three exits so far in 2021 have raised £ 18m. Duke has more than £ 55m in liquidity to fund a pipeline of growing opportunities.
An important issue when valuing Duke as an investment is the ability to increase dividends. This depends on the number of new loyalty partners and whether they are properly selected to grow your business and increase your loyalty payments. The 2020 virus provides rigorous testing of client quality and rest assured that the key indicators of operating cash flow per share increased from 2019 to 2020 and again increased to 3.68p in 2021. Let me do it. This gives investors a Duke outlook. Its share was 50p in late 2019, but dropped to 19p and is now around 43p. From 2020 to 2021, a dividend of 2.25p was paid with a trailing yield of 5.3%. Since the 2017 flotation, the annual dividend yield has ranged from 5% to 8%.
Duke Loyalty: Prince’s Return for Income Investors
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