# Oakley Capital Investments: Proving the pudding: a sustainable growth model

- Link: https://www.directorstalkinterviews.com/oakley-capital-investments-proving-the-pudding-a-sustainable-growth-model/4121057201
- Published: 2022-03-18T07:11:46+00:00
- Author: Amilia Stone

**Oakley Capital Investments Limited** (LON:OCI) full-year results were strong, 
with an annual total NAV return of 35% (three quarters of which was driven by underlying
company EBITDA growth of 28%). This brings OCI’s five-year CAGR NAV total return
to 19%, and is driven by i) high-growth companies/sector champions with structural
tailwinds and often digital disruption benefits, ii) repeatable and proprietary 
sourcing, and post-acquisition support from its unique entrepreneur network, iii)
recurring/subscription revenue streams, and iv) M&A-led value creation. The outlook
is for more of the same. A £20m buyback has been announced, and quarterly reporting
starts in April. The 23% discount to NAV appears anomalous with absolute and relative
performance.

 * **Business model growth:** The key message from these results is how sustainable
   growth is generated. The 28% EBITDA growth has not been generated by accident,
   or luck, but reflects how the model works, and the value added by Oakley Capital
   on an ongoing, repeatable, play-book basis. That is what investors are buying
   into.
 * **Outlook:** Oakley Capital Investments’ £336m commitment to Fund V evidences
   its confidence in near-term opportunities for new investments. The 2021 momentum
   in existing businesses appears strong, with limited exposure to inflation/interest
   rate/Russian-related risk. The model has proven resilience to broader economic
   downturns.
 * **Valuation:** Against the December NAV, OCI trades at a 23% 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 PE market, enhanced by Oakley’s incremental origination
   and active management skills. Oakley Funds focus 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.

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