April 2023 Monthly

In our note , 2022: NAV returns driven by EBITDA growth, we highlighted NAV of 662p per share, a 24% total NAV return, that 65% of the NAV growth was driven by EBITDA growth and 35% by multiple expansion, investments of £271m, realisations of £244m, available finance (including cash) of £210m and commitments of £929m. Some key business messages were 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 environments. Its five-year share price total return (195%) is the best out of all the £10m+ AIC members.

• Robust valuation: The report reviewed why we believe investors can trust the current NAV. The key is that other investors pay more for the assets than the level at which Oakley’s book values them (average 54% uplift on exit since inception). Oakley has no incentive to inflate the NAV and has independent checks.
• Sustained outperformance: OCI’s five-year NAV total return CAGR to end- 2022 was 23%. It is focused on structural growth sectors 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 NAV, OCI trades at a 32% discount, despite its strong absolute, peer and market-topping relative performance. OCI has delivered consistently, with especially robust performance through COVID-19, demonstrating its downside resilience. OCI yields 1.0%.
• 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 by investing in funds managed by Oakley Capital, benefiting from 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. Accounting and governance appear conservative. There are risks – primarily sentiment-driven – around costs, cyclicality, liquidity and valuation of the underlying private assets. There is potential upside from the one-off closing of the discount, but also relatively quickly gained by ongoing NAV growth.