On a wet day in May, Oakley Capital Investments Limited (LON:OCI) CM Day was a ray of sunshine, explaining how it has delivered the impressive market- and peer-beating 19% NAV CAGR growth 2017-21 (6% 1Q’22), and why this growth should be sustainable going forward. At its core is an investment focus on structurally high-growth areas, combined with a unique proprietary network originating deals. Once a business has been acquired, value is added through business transformation (e.g. digitalisation), performance improvement, leadership development and buy-and-build strategies. Oakley Capital’s expertise incrementally improves investee companies. Investors are buying into this sustainable, long-term model, not just the current attractive portfolio.
- Current issues: The CM introduction addressed how OCI will fund its commitments (cash + near-term realisations vs. long-term commitments), its prudent approach to valuations (largely kept at, or near, acquisition ratings until close to exit) and the multiple approaches being taken to address the high level of discount.
- Sustained outperformance: A key theme running throughout the session was sustained outperformance. 75% of recent NAV growth is driven by EBITDA growth. Funds III and IV are in the top 5% on Preqin performance benchmark data for realised assets, with IRRs over 50%. €665m has been deployed in 2021/22, funding future growth.
- Valuation: Against the March 2022 NAV, OCI trades at a 27% discount, despite its absolute (five-year CAGR 19% total NAV return) and relative performance. The 2021 total NAV return of 35% is significantly greater than the discount, with the latter reflecting the “icing on the cake”, rather than the reason to buy, we believe. OCI yields 1.1%.
- Risks: While OCI’s costs are slightly above-average, post-expense returns are still market-beating. Sentiment towards the global economic cycle is likely to be adverse, even though outperformance has been delivered in downturns. OCI’s portfolio is concentrated, and we believe its permanent capital is right for private assets
- Investment summary: Oakley Capital Investments provides investors with liquid access to the attractive private equity (PE) market, enhanced by Oakley’s incremental origination and active management skills. Oakley Funds focuses on mid-market, tech-enabled European companies that operate in the technology, consumer and education sectors. This space provides structural growth, as well as opportunities for Oakley Capital to add operational, strategic and financial value to the business acquired. Accounting and governance appear conservative, with an average 50% uplift to carrying value in exit since inception. There are risks – primarily sentiment-driven – around costs and cyclicality, as well the liquidity and valuation of the underlying private assets.
