Stock Analysis & Valuation Duke Capital Limited (DUKE.L)

• Previous Close: £27.00
• Sector Valuation Confidence Level: High

Valuation method	Value, £	Upside, %
Artificial intelligence (AI)	40.65	51
Intrinsic value (DCF)	12.19	-55
Graham-Dodd Method	0.01	-100
Graham Formula		n/a

Strategic Investment Analysis

Company Overview

Duke Royalty Limited (LSE: DUKE.L) is a Guernsey-based principal investment firm specializing in royalty financing for stable, cash-flowing businesses. Founded in 2015, Duke Royalty provides capital to companies in exchange for a percentage of future revenues, focusing on businesses with positive EBITDA, low debt, and strong management continuity. The firm avoids start-ups and tight-margin models, instead targeting government or regulatory-licensed sectors with predictable revenue streams. Operating in the financial services sector under asset management, Duke Royalty offers an alternative financing solution that aligns investor returns with company performance without diluting ownership. With a market cap of approximately £120 million, Duke Royalty serves as a niche player in the royalty financing space, appealing to investors seeking diversified exposure to recurring revenue streams across multiple industries.

Investment Summary

Duke Royalty presents an intriguing investment case due to its unique royalty financing model, which generates predictable cash flows from diversified revenue-sharing agreements. The firm’s focus on stable, low-debt businesses mitigates some risk, while its 3 GBp dividend per share offers income appeal. However, the company’s beta of 1.202 suggests higher volatility than the market, and its £70.9 million total debt could pressure liquidity if revenue streams weaken. Investors may find Duke Royalty attractive for its non-dilutive capital approach and recurring revenue model, but should weigh sector concentration risks and reliance on portfolio companies’ performance.

Competitive Analysis

Duke Royalty occupies a specialized niche in royalty financing, differentiating itself from traditional debt and equity providers by offering non-dilutive capital tied to revenue streams. Its competitive edge lies in targeting mature, cash-generating businesses—unlike venture capital firms that focus on high-growth start-ups. The firm’s stringent criteria (positive EBITDA, low debt) reduce counterparty risk, while its diversified portfolio across sectors hedges against industry-specific downturns. However, Duke Royalty faces competition from private credit funds and business development companies (BDCs) that offer alternative financing. Its scalability is constrained by the limited pool of qualifying businesses, and its Guernsey domicile may limit visibility among mainstream investors. The royalty model’s success hinges on maintaining disciplined underwriting and portfolio monitoring to avoid revenue shortfalls from investee companies.

Major Competitors

• Owl Rock Capital Corporation (ORCC): Owl Rock (NYSE: ORCC) is a US-based BDC providing direct lending solutions to mid-market firms. Unlike Duke Royalty’s revenue-sharing model, Owl Rock focuses on secured loans with fixed interest, offering higher predictability but less upside from portfolio growth. Its larger scale ($12B+ assets) and US market dominance give it broader deal flow, but Duke’s royalty structure avoids credit risk inherent in Owl Rock’s debt-heavy approach.
• FS KKR Capital Corp (FSK): FS KKR (NYSE: FSK) is a leading BDC with a $15B portfolio, specializing in senior secured loans to private US companies. Its strength lies in diversified credit investments and KKR’s institutional backing, but its reliance on interest income exposes it to rate fluctuations—a contrast to Duke’s revenue-linked payouts. FSK’s size dwarfs Duke’s, but its lack of royalty financing limits flexibility for borrowers.
• Gladstone Capital Corporation (GLAD): Gladstone (NASDAQ: GLAD) provides debt and equity to small/mid-sized US businesses, with a focus on current income. Its hybrid model combines elements of Duke’s equity participation but leans heavily on secured debt. Gladstone’s smaller portfolio (~$800M) is less diversified than Duke’s, and its higher dividend yield (9%+) reflects greater risk, whereas Duke’s royalty ties to revenue may offer more downside protection.
• PennantPark Floating Rate Capital (PFLT): PennantPark (NASDAQ: PFLT) invests in floating-rate loans to US middle-market companies, benefiting from rising interest rates. Unlike Duke’s fixed-percentage revenue model, PFLT’s returns are rate-sensitive. Its $1.2B portfolio is concentrated in senior secured debt, offering lower risk than subordinated notes but lacking Duke’s potential upside from revenue growth in portfolio companies.