Educating on education

Following the strengths in education investments reported in OCI’s January trading statement, we note that the sector’s attractions include i) structural growth, ii) defensive revenue, iii) high barriers to entry, iv) strong ESG credentials and v) scarcity of scale assets. The sector benefits from PE’s value-creation toolkit, with i) bolt-on strategies in highly fragmented markets, ii) tech-enablement and digitalisation skills, iii) transferability of expertise, and iv) increasing commercialisation of returns. Oakley was an early and active education investor, and now has proven case studies showing all these advantages. Education investments were 27% of OCI’s NAV as at June 2021. The most recent exit was at an IRR of 43%.

• Education as the new healthcare: Education is similar to healthcare in that it constitutes a huge part of the economy and has defensive cashflows. Listed and PE involvement in healthcare has grown substantially, and is growing in education, where there are few global scale/reach businesses. Oakley is leading the charge.
• Why Oakley/OCI? Oakley has a strong track record as one of Europe’s most prolific PE investors in this sector. Leveraging experience in technology, internationalisation and M&A, it has successfully grown offline and online platforms across primary, secondary and tertiary education, as well as in professional learning.
• Valuation: Against the December NAV, OCI trades at a 19% discount, despite its absolute (five-year CAGR 19% total NAV return to December 2021) and relative performance. The December trading statement reported that the 2021 total NAV return was 35% and the TSR 48%, both more than the discount. OCI yields 1.2%.
• 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, 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 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 19% discount is about one-year’s average recent NAV total return.