June 2021 Monthly

OCI ‘s annual Capital Markets (CM) day on 18 May 2021 was reviewed in our note, 2021 Capital Markets day: proof of the pudding. With presentations from Oakley Capital and investee companies, as well as Q&A, it gave a clear view of OCI’s prospects. OCI’s outperformance (five-year CAGR NAV total return 16%) is driven by i) high-growth companies and sector champions enjoying structural tailwinds and often digital disruption benefits (2020 average 20% EBITDA growth), ii) repeatable and proprietary sourcing through the entrepreneur network, which also helps businesses post-acquisition, and iii) value creation through M&A.

• Entrepreneurial network: Embedded in Oakley’s DNA is a sustainable, growing, competitive advantage from its entrepreneur network, built up over 14 years. Oakley has supported their businesses in the past, and the partners have, in turn, invested €170m in Oakley Funds and helped Oakley find/manage acquisitions.
• Growth businesses: Oakley’s value creation comes primarily from investee companies’ growing EBITDAs (average +20% in 2020). This is achieved by i) being in growth sectors, ii) having tech-enabled/digitised models (70%+), iii) having transforming business models, and iv) having recurring revenue streams.
• Valuation: Against the end-Dec NAV, OCI trades at a 20% discount, despite its absolute (five-year CAGR total return of 16% to end-Dec) and relative (Oakley Fund III top 5% peer return) performance. Its above-peer discount is based off the December NAV, while peers use recent (higher) valuations. OCI yields 1.4%.
• 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. 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 management skills. Oakley Funds focus on mid-market, tech-enabled Western European companies that operate in the consumer, education and technology sectors. Accounting and governance appear conservative. There are risks – primarily sentiment-driven – around costs, cyclicality, and the liquidity and valuation of private assets. Buying an outperforming business at a discount is attractive, in our view, but we believe investors should focus on the long-term compounding NAV growth.