1H’22: results prove NAV real, resilient and growing

We believe a significant driver to the whole listed PE sector trading at a large discount to NAV is investors’ concerns about whether the NAVs are real and conservative, and whether they can grow. For OCI, the detail in its latest results disclosure should, once again, abate any of those worries. In particular, we highlight i) realisations, on average, 52% above carrying value, ii) 18% growth in investee company EBITDA (which accounts for around three quarters of NAV growth), iii) a PEG ratio of 0.8x, iv) 93% of multiple expansion driven by exit uplifts, and v) average EV/EBITDA ratings below listed market levels, despite subsectors that attract high ratings. Oakley adds value to companies in all economic environments, especially uncertain ones.

• Robust valuation: Inter alia, this report reviews why 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 that 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 June 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 adjusted June 2022 NAV, OCI trades at a 36% 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 1.1%).
• 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 focuses on mid-market, 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 business acquired. Accounting and governance appear conservative, with an average 52% 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.