April 2022 Monthly

We reviewed OCI’s strong results in our note, Proving the pudding: a sustainable growth model, published on 16 March. Three quarters of the 2021 total NAV return of 35% was driven by underlying company EBITDA growth. This brings OCI’s five-year CAGR NAV total return to 19%. Key factors are i) high-growth companies/sector champions with structural tailwinds and digital disruption benefits, ii) repeatable proprietary sourcing, from Oakley Capital’s unique entrepreneur network, iii) recurring/subscription revenue streams, and iv) M&A-led value creation. The outlook is for more of the same. A £20m buyback has been announced. Multiple directors have been buying shares in the market.

• Business model growth: The key results message is how sustainable growth is generated. 28% underlying company EBITDA growth was not generated by accident, but reflected the value added by Oakley Capital on an ongoing, repeatable, play-book basis. That is what investors are buying into.
• Outlook: OCI’s £336m commitment to Fund V shows its confidence in near-term opportunities. The 2021 momentum in existing businesses appears strong, with limited exposure to inflation/interest rate/geo-political risk. The model has proven resilience to broader economic downturns.
• Valuation: Against the end-December NAV, OCI trades at a 25% discount, despite its strong absolute, and peer and market-beating, relative performance. OCI has delivered consistently, with especially robust performance through COVID-19, demonstrating its downside resilience. OCI yields 1.1%.
• Risks: While OCI’s costs are slightly above-average, post-expense returns are still market-beating. Sentiment towards economic cycles may be adverse, even though downside protection has been proved repeatedly. 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, 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 25% discount is less than one-year’s average recent NAV total return.