July 2022 Monthly

Our note, Capital Markets Day 2022 – let the sun shine, reviewed OCI’s afternoon of presentations, detailing how it had delivered 19% NAV CAGR growth over 2017-21 (6% 1Q’22), and why this growth should be sustainable going forward. At its core is an investment focus on structurally high-growth areas, combined with a unique proprietary network originating deals. Once a business has been acquired, value is added through business transformation (e.g. digitalisation), performance improvement, leadership development and buy-and-build strategies. Investors, and once again recently a director, are buying into this sustainable, long-term model, not just the current attractive portfolio.

• Still generating upside on sale: The 8 June sale of Contabo was at a ca.105% premium to the carrying value – and this for a technology asset, despite market falls. The 23 June sale of Facile.it was at a 23% uplift. Both demonstrate OCI’s conservative approach to valuation, and that its NAV is reliable.
• Sustained outperformance: In terms of sustaining outperformance, 75% of recent NAV growth has been driven by EBITDA growth. Funds III and IV are in the top 5% on Preqin performance benchmark data for realised assets, with IRRs over 50%. €665m has been deployed in 2021/22, funding future growth.
• Valuation: Against the end-March NAV, OCI trades at a 36% 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 1.2%.
• 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. There is potential upside from the one-off closing of the discount, but this may be considered against the compounding benefits from NAV growth.