- Annual profit before tax rises by a third to £21.4m
- Free cash flow (FCF) per share up 14 per cent at 3.53p
- Dividend per share of 2.25 pence is forecast to rise to 2.9 pence in the current year
duke royalty (DUKE:34.5p), an Aim-listed company that makes money by providing capital to companies in exchange for rights to a small percentage of their future revenues, has delivered excellent cash flow performance in fiscal 2021/ 22, and it seems well set to keep progressing.
In the 12 months to March 31, 2022, the group invested £75m, of which £61m was in five new royalty partners. Not only did this diversify the portfolio to 13 royalty partners, but it boosted total cash revenue by two-thirds to £18.4m and lifted recurring cash revenue by 69 per cent to £14.9m, turning a profit. in capital investments that explain the difference between the two. metrics. In addition, Duke booked £10.8m of unrealized gains in its portfolio, up from £3.5m a year earlier, so net asset value rose more than 50 per cent to £133. million pounds sterling after taking into account a capital increase of 35 million pounds oversubscribed during the financial year.
Since the end of the period, Duke has raised a further £20m of equity capital (‘Leveling the playing field’, August 4, 2022), of which £5.4m has been deployed in two follow-on investments with existing partners in the IT and healthcare services sectors. Although the fund balance will be deployed across a number of investment opportunities, Duke has sensibly repaid a portion of its £48m year-end loans to save short-term interest costs.
House broker Cenkos Securities expects total interest income to rise by 55 per cent to £21.7 million in the current financial year, rising to £25.1 million in 2023/24 when Duke’s available capital should fully unfold. On this basis, total cash receipts are forecast to rise to £22.5m (2022/23) and £25.9m (2023/24), supporting free cash flow forecasts. per share of 3.2 pence and 3.6 pence, respectively. In turn, continued strong cash flow performance supports estimates for dividends per share of 2.9 pence and 3.2 pence. The current quarterly dividend of 0.7 pa per share is annualized to 2.8 pa per share, adding weight to analysts’ forecasts.
On this basis, the stock offers prospective dividend yields of 8.4 and 9.3 percent, and trades at a price-to-book ratio of 0.94 times, well below the pre-Covid-19 range (1, 1 to 1.4 times). While the macro environment creates uncertainty, Duke’s business model has proven resilient during the Covid-19 downturn, and with reasonable balance sheet leverage (loan-to-value ratios on debt lines are capped at 30 percent ), then the group appears to be on track to meet analyst forecasts. Additionally, the current inflationary environment is driving portfolio company earnings higher, creating a positive tailwind for royalty resets and portfolio valuation increases.
Duke stock has produced a total return (TR) of 30.5 percent since I listed the company in my Bargain Stock Portfolio 2021, during which time the FTSE Aim All-Share TR Index has lost 26.9 percent of its value. The attractive dividend and the 6 percent discount to the 36.7-year spot NAV point to a further rise in the share price. To buy.
Oakley Capital record performance in the first half
- Half-year NAV per share increased 17 per cent to 630p
- Full 94p NAV return from early 2022
- Cash at end of period £97 million
- £110m of cash realizations from June 30, 2022
Half-year results of the private equity investment company Oakley Capital Investments (OCI:399p) highlight why the stock has generated a total return of 189 per cent since I suggested buying, at 146.5p, in my Portfolio of Trading Shares 2016. In fact, an annualized NAV per share return of 23 percent over the past five years is the highest in the publicly traded private sector.
As has been the case in previous reporting periods, cash earnings growth of Oakley-owned companies has been the primary driver of valuation improvements (72 percent of valuation movement), with multiple expansion accounting for 28 percent increase. The move in multiples is warranted, as highlighted by the £64m of portfolio realizations made in the six-month trading period.
For example, Oakley’s stake in the SME cloud hosting platform Contabo was sold in June 2022 for double its March 2022 book value, and the sale of the stake in the Italian comparison website for Facile online pricing was made at a 23% premium to book value. From the period end of June 30, 2022, Oakley has agreed to a partial exit from the Seedtag contextual advertising business, at 70 percent above June 2022 book value, a transaction that adds an additional 4 pence per share to NAV. .
Importantly, the continued strong operating performance of Oakley’s investee companies justifies their valuation increases. The group’s stake in IU Group, Germany’s largest university group, now accounts for 18 percent of NAV after the company reported 34 percent growth in student numbers and 23 percent higher annual profit. cash.
It is worth noting that although the group’s portfolio companies have delivered 18% cash earnings growth over the past 12 months, Oakley only values them at an average cash earnings multiple of 13.7 times valuations. of their companies. That rating is the lowest in the private equity sector and is all the more anomalous given that 70 percent of Oakley’s portfolio leans toward digital businesses and most companies generate revenue streams based on or recurring. subscriptions.
Despite outperforming its peers, the stock is 36.5% off to the June 2022 NAV of 630p, the widest in the industry, and 41% below the ending NAV estimate. of year of Liberum Capital of 679.6 pence. A maintained dividend of 4.5 p a share provides a small income stream for shareholders, while excess cash is being deployed in a NAV per share cumulative share buyback program.
So while Oakley’s stock price has moved a bit since I covered the first quarter results (‘Ready for new highs’, April 28, 2022), the current strong operating performance and solid cash holdings of its portfolio point to significant re-rating potential when equity market conditions are more benign. To buy.
Cenkos trading was affected by the stock market crash
- Underlying H1 operating profit falls 29% to £1.9m
- Reported operating loss of £0.4mn
- Adjusted EPS down a third to 3.3 pence and dividend cut 20 per cent to 1 pence per share
- Net cash of £15.9m equals half the market capitalization
corporate broker Cenkos Values (CNKS:54.5p) has been hit by the downturn in equity markets, although a reported first-half operating loss of £0.4m masks what was still a respectable underlying operating profit of £1.9m. of pounds sterling on 30 per cent less income of 12.7 pounds sterling. Minnesota. The reported result comes after £1.9m of non-cash market value losses on options and warrants, a reflection of the sharp stock market decline that accelerated in the second quarter and restructuring costs and incentive plans.
In the first half, corporate finance revenue fell by a third to £8.6m and net trading profits of £0.8m were down by two-thirds in the same period in 2021. Cenkos completed nine transactions. placement, raising £380m, including £310m on Aim, or 23 per cent of the total raised on the London junior market in the period. The broker also delivered two of the eight IPOs on Aim, but profits have been slim. In the first 10 weeks of the second halving, Cenkos only completed three trades and expects moderate trading volumes to persist.
A cash-rich balance sheet means the group is well capitalized to ride out weaker market conditions, but there’s no escaping the fact that sentiment is poor and the stock lacks a share price catalyst. Also, although the board declared a 20% lower half-year dividend per share of 1p, and last year’s annual underlying pre-tax earnings of £5.9m are likely to be down considerably, then don’t expect a repeat final payment. from 3.25p.
Under the circumstances, I am reversing my last buy call (‘Broking in a highly profitable business stream’, March 21, 2022), and I suggest depositing the remainder of the 14 percent paper profit if you have been following my strategy of beating the market. 2020 Trading Stock Portfolio. Sell.
Simon Thompson was named Journalist of the Year at the 2022 Small Cap Awards.
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