May 2022 Monthly

We reviewed OCI’s strong full-year 2021 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 has continued in 1Q’22, with the trading update released on 27 April reporting a 6% NAV total return in the quarter. Once again, 75% of this was driven by underlying company EBITDA growth. NAV per share is now 571p, and total NAV exceeds £1bn, of which on-balance sheet cash is £180m (no debt at OCI level). The latest factsheet is here. OCI will be hosting its annual Capital Markets day on 11 May at 2pm (contact [email protected]).

• Business model growth: The key trading update message is, once again, how sustainable growth is generated. Underlying company EBITDA growth is not generated by accident, but reflects the value added by Oakley Capital on an ongoing, repeatable, play-book basis. That is what investors are buying into.
• Outlook: OCI’s €800m commitment to Fund V shows its confidence in near-term opportunities and anticipated realisations. The 2021 momentum in existing businesses appears strong, with limited exposure to inflation/interest rate/geopolitical risk. The model has proven resilience to broader economic downturns.
• Valuation: Against the end-December NAV, OCI trades at a 27% 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 27% discount is less than one-year’s average recent NAV total return.