Oakley Capital Investments

1H’21: 35% EBITDA growth drives 26% NAV return

13 Sep 2021 / Corporate research

OCI’s results were strong, with i) an annual total NAV return of 26% (11% in six months), ii) average annual portfolio company EBITDA growth of 35% (20% FY’20), 12.3x EV/EBITDA (FY’20 11.8x) and 3.5x net debt/EBITDA (FY’20 3.9x), iii) £95m investment and £51m realisations in six months, and iv) year-end cash of £172m. This performance, and OCI’s 17% five-year CAGR NAV total return, 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) 75% recurring/subscription revenue streams, and iv) M&A-led value creation.

  • Entrepreneurial network: Embedded in Oakley’s DNA are the sustainable, growing, competitive advantages from its 14-year-old, 20-strong, entrepreneur network, the businesses of which Oakley has supported in the past. These partners have invested €170m in Oakley Funds, and they help find/manage acquisitions.
  • Growth businesses: Oakley’s value creation comes primarily from growing its investee companies’ EBITDAs (average 35% p.a.), achieved by i) being in growth sectors, ii) having tech-enabled and digitised models (70%), iii) having the skill set to transform business models, and iv) recurring revenue streams to protect downside.
  • Valuation: Against the end-June NAV, OCI trades at a 21% discount, despite its absolute (five-year CAGR 17% total NAV return to June 2021) and relative performance. Its above-peer discount is based off the June NAV, while peers are based off more recent (higher) valuations. OCI yields 1.3%.
  • 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: OCI provides investors with liquid access to the attractive PE market, enhanced by Oakley’s incremental origination and management skills. Oakley Funds focus on mid-market, tech-enabled European companies that operate in the technology, consumer and education 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. We believe buying long-term, compounding growth is the key attraction, with any further closing of the discount to NAV an added bonus. The current 21% discount is about one-year’s average recent NAV total return.
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