2020 results: sustained and sustainable NAV growth

OCI’s 2020 results were strong. Through this challenging year, i) the total NAV return reached 18%, ii) 10 companies representing 44% of NAV met or exceeded pre-COVID-19 expectations, and only three (13% of NAV) were significantly impacted, iii) both investments and realisations continued strongly (£152m and £341m, respectively), iv) year-end cash was £223m, giving huge firepower to take current opportunities, 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 26% discount, despite its absolute (five-year CAGR 16% total NAV return) and relative (Oakley Funds II & III top-quartile/5% by different measures) performance. OCI yields nearly 2%. Relative to both historical and peer levels, 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. Previously large shareholder overhangs have now been sold completely. Buying a business with a consistent record of outperformance at a material discount to NAV is an additional attraction, we believe.