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RiverFort Global Opportunities - Initiation of Coverage

A stock for all seasons – income generating venture debt portfolio complemented by equity upside from convertibles, warrants and high impact pre-IPO investments

RiverFort Global Opportunities (RGO) is an AIM listed investment company which invests via venture debt instruments in small cap companies across a range of sectors and stock exchanges. Returns are generated for shareholders via a mix of interest and fee income on venture debt instruments, along with equity upside from direct equity investments, warrants and conversion rights. More recently, RGO has been looking for further upside potential by investing in high impact growth companies, at the pre-IPO stage, with a particular bias towards the technology sector.

• Venture debt portfolio provides stability & upside potential

  RGO provides capital in the form of venture debt and/or equity-linked debt instruments such as convertible loans. Unlike conventional debt financing methods, venture debt generally does not require collateral because growth companies generally do not own substantial tangible assets that can be used as such. Investors are compensated for this by receiving equity warrants in the company to balance the higher-risk nature of the debt instruments. This form of financing provides RGO with both downside protection and equity upside potential, along with a stream of income coming from debt interest and arrangement fees. The company typically receives warrants which can significantly increase the level of investment return.

• Focus on high impact pre-IPO investments provides further upside

  Recognising the high valuation multiples currently being achieved in public markets, RGO has been increasingly looking to make investments in companies operating in fast growing industries, such as technology, at the pre-IPO stage of their development. This is to benefit from valuation increases associated with subsequent sales or IPOs. Two such investments have been made to date, in digital assets and crypto technology company, Pluto Digital Assets and Artificial Intelligence (AI) based cyber-security business, Smarttech247. Both companies are planning to go public in the coming months, providing likely near-term valuation uplifts along with long-term growth potential.

• Significant upside remains despite share price rise

  We believe that RGO’s current market valuation is completely backed by its existing assets, with minimal value being attributed to its warrant portfolio (including warrants in Kodal Minerals, Pires Investments, Canadian Overseas Petroleum, and Invinity Energy Systems); and the potential upside from the upcoming IPOs of Pluto Digital and Smarttech247. RGO has the potential for significant additional value accretion from: the potential for these two companies to go on and grow their operations and valuations; and the opportunities to exercise and crystalise gains on the warrant portfolio. RGO also offers income attractions, with a dividend yield of 3.53% implied for 2020. We initiate coverage with a stance of Speculative Buy.