Duke Capital has established itself as a prominent provider of hybrid capital solutions for profitable, lower mid-market private businesses. Operating since 2017, Duke offers a unique investment product that combines a fixed-rate corporate mortgage with variable rates linked to the performance of the companies they invest in. Additionally, they participate in the equity stakes and exit fees, creating a comprehensive approach to business financing.
CEO Neil Johnson recently shared insights into Duke’s operations and performance. Duke Capital’s FY24 results showcased record-breaking figures, with total cash revenue surpassing £30 million and free cash flow nearing £18 million—up over 30% from the previous year. These strong results were supported by the company’s recurring revenue model, which sees consistent returns through long-term corporate mortgages and participation in the growth of their portfolio companies.
Duke’s investment strategy is designed for long-term growth. Their hybrid model allows business owners to secure a 30-year corporate mortgage, with the flexibility to refinance and exit the agreement when needed. Exit fees and minority equity stakes provide further revenue opportunities, as demonstrated by the three exits the company completed in the last year. On average, Duke expects one or two buyouts annually, with an internal rate of return (IRR) ranging between 20% and 30%.
Another key aspect of Duke Capital’s success is its operating leverage. As a company with relatively fixed operating costs, Duke has reduced its cash costs as a percentage of recurring revenue from 22% in FY22 to just 12% in FY24, showcasing the efficiency of its business model. With over £200 million invested across 15 companies, the firm continues to expand while maintaining tight cost control.
In terms of dividends, Duke offers an attractive yield of approximately 9%, which is well-covered by both free cash flow and recurring revenue. This stability, combined with their hybrid investment structure, allows Duke to provide long-term capital while enabling business owners to retain control over their operations.
Duke Capital’s impressive FY24 performance, highlighted by strong cash flow, solid returns, and a well-covered dividend, reflects the strength of its hybrid investment model. By combining private equity elements with fixed corporate loans, the company is well-positioned for continued success, providing valuable financing solutions to mid-market businesses.
