April 2021 Monthly

The key messages from our review, 2020 results: sustained and sustainable NAV growth, published on 22 March were i) the total NAV return was 18%, ii) 10 companies representing 44% of NAV met or exceeded pre-COVID-19 expectations, and only three (13% of NAV) were significantly affected, iii) both investments and realisations continued strongly (£152m and £341m, respectively), iv) year-end cash was £223m, and v) potentially disruptive large share overhangs have been sold out. The digital focus, concentration on structural growth markets and Oakley’s unique repeatable origination from its network of entrepreneurs bode well for the future.

• Growth sustained through COVID-19: Oakley’s focus on tech-enabled, structural-growth, recurring-revenue-stream businesses meant that its portfolio companies delivered, on average, 2020 EBITDA growth of 20%. OCI benefited from realisations 89% above their book values and a value-enhancing buyback.
• Sustainable growth outlook: The key drivers to continued strong performance are i) the unique origination at a time of increased opportunities from carve-outs and family business sales, ii) value added to the newly acquired businesses, iii) continued realisations above book value, and iv) no recurrence of the 2020 drags.
• Valuation: Against the end-December NAV, OCI trades at a 25% 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.