2022: NAV returns driven by EBITDA growth

The January trading statement announced NAV (662p per share), total NAV return (24%), NAV growth driven by EBITDA growth (65%), modest multiple expansion (35%), investments (£271m), realisations (£244m), available finance, including cash (£210m), and commitments (£929m). The detailed results announcement highlighted i) 2022 exits, on average, 70% above carrying value, ii) 22% investee company average earnings growth, iii) weighted average EV/EBITDA of 15.9x, below listed market levels, iii) a PEG ratio of 0.7x, and iv) >75% of deals were uncontested. Oakley adds value to its companies in all economic environments. Its five-year share price total return (196%) is the best out of all the AIC investment companies.

• Robust valuation: Inter alia, this report reviews why we believe investors can trust the current valuation. Putting aside independent checks and balances, the bottom line is that other investors pay more for the assets than the level at which Oakley values them (uplifts on exit), and there is no incentive for Oakley to inflate the valuation.
• Sustained outperformance: OCI’s five-year NAV total return CAGR to December 2022 was 23%. It is focused on structural growth sectors and subsectors with proven economic resilience. Oakley’s operational, strategic and financial support is incrementally more valuable in a downturn than in good times, when rising tides lift all boats.
• Valuation: Against the December 2022 NAV, OCI trades at a 32% discount, despite its absolute (five-year CAGR 23% total NAV return) and relative performance. Any one-off closing of the discount is the “icing on the cake”, rather than the reason to buy (the long-term NAV CAGR). We expect a stable 4.5p dividend (yield 1.0%).
• 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 active management skills. Oakley Funds focus on mid-market, profitable, tech-enabled European companies that operate in the technology, consumer and education sectors. This space provides structural growth, as well as opportunities for Oakley Capital to add operational, strategic and financial value to the businesses acquired. Accounting and governance appear conservative, with an average 54% uplift to carrying value on exit since inception. There are risks – primarily sentiment-driven – around costs and cyclicality, as well the liquidity and valuation of the underlying private assets.