March 2021 Monthly

We highlighted OCI’s unique PE model in our notes, When it rains gold, put out the bucket (1 September 2020) and NAV: conservative, robust and with growth upside (3 December 2020). Its entrepreneur-network-driven approach, focused in key sectors, has delivered excellent long-term returns. In 2020, OCI delivered an 18% total NAV return per share, and we expect more details with the results due on 11 March. With £176m of cash (mid-Feb 2021), it is well positioned to exploit the above-average returns we expect on 2021 new business, and we expect more detail on that too. The 30% discount to NAV appears anomalous with long-term returns and this outlook.

• OCI news flow: After the 21 January trading update, there has been multiple insider buying: D. Till (6,750 @ 292p), F. Beck (10,400 @ 293p) and R. Lightowler (30,000 @ 291.61p). We believe multiple buying by directors is a strong sign of their confidence. OCI also announced a £13m investment in Dexters.
• Peer news: PEY’s 4Q conference call highlighted the strong rebound in global PE buyouts, which it expects to continue in 2021 (see slide 16). NBPE also saw director buying, as did APAX. The latter also reported new investments and realisations. We conclude that the peer news flow confirms the strong conditions for PE at present.
• Valuation: Against the end-December NAV, OCI trades at a 30% discount, despite its absolute (10-year 156% total NAV return to June 2020) and relative (Oakley Funds II & III top-quartile/5% by different measures) performance. OCI’s dividend yield is ca.2%. Relative to peers, the discount is unusually high.
• 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. Its permanent capital is right for private assets.
• Investment summary: OCI provides investors with liquid access to the attractive PE market, enhanced by Oakley’s incremental origination and management skills. The Oakley Funds are focused on mid-market, tech-enabled Western European companies that operate in the consumer, education and technology sectors. Accounting and governance appear conservative. There are risks – primarily sentiment-driven – around costs and cyclicality, as well as the liquidity and valuation of the underlying private assets. Buying a business with a record of outperformance at a discount to NAV is an additional attraction, we believe.