2021 Capital Markets day: proof of the pudding

OCI hosted its annual Capital Markets (CM) day on 18 May 2021. With presentations from Oakley Capital and investee companies, as well as Q&A, including the OCI board, it gave a clear view of the prospects of the organisation. We have argued in previous notes that OCI’s outperformance (five-year CAGR NAV total return 16%) is driven by i) high-growth companies and sector champions enjoying structural tailwinds and often digital disruption benefits (2020 average 20% EBITDA growth), ii) repeatable and proprietary sourcing through the entrepreneur network, which also helps businesses post-acquisition, and iii) value creation through M&A. All were reinforced during the CM day presentations.

• Entrepreneurial network: Embedded in Oakley’s DNA are the sustainable, growing, competitive advantages above from its 14-year-old entrepreneur network (Oakley has supported their businesses in the past). The partners have now invested €170m in Oakley Funds, and they help Oakley find/manage acquisitions.
• Growth businesses: Oakley’s value creation comes primarily from growing its investee companies’ EBITDAs (average +20% in 2020), 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-December NAV, OCI trades at a 19% discount, despite its absolute (five-year CAGR 16% total NAV return) and relative (Oakley Fund III top 5% peer return) performance. Its above-peer discount is based off the December NAV, while peers are based off more recent (higher) valuations. OCI yields 1.4%.
• 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 are focused on mid-market, tech-enabled Western 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. Previously large shareholder overhangs have now been sold completely. Buying an outperforming business at a 19% discount to NAV is an additional attraction, in our view, although we believe long-term compounding growth is the key attraction (the discount is just one year’s growth).