November 2021 Monthly

In our report, 1H’21: 35% EBITDA growth drives 26% NAV return, published on 13 September, we noted that OCI’s results were strong, with i) an annual total NAV return of 26% (11% in six months), ii) average annual portfolio company EBITDA growth of 35% (20% FY’20), 12.3x EV/EBITDA (11.8x FY’20) and 3.5x net debt/EBITDA (3.9x FY’20), iii) £95m investment and £51m realisations in six months, and iv) cash of £172m. OCI’s five-year CAGR NAV total return is 17%, driven by high-quality business originated by its entrepreneur network. Against this sustained growth, with proven downside protection, the 14% discount to NAV appears anomalous, in our view.

• Entrepreneurial network: Embedded in Oakley’s DNA are the sustainable competitive advantages from its 14-year-old, ca.20-strong, and expanding, entrepreneur network. These partners have invested ca.€200m in Oakley Funds, and they help source acquisitions and then help grow the businesses.
• Outlook: 75% of Oakley’s 1H’21 value creation was driven by investee company EBITDA growth. We expect further growth in 2H’21. The average technology companies’ rating has also risen slightly, and PE market exits are continuing at above carrying values, supporting further OCI NAV growth.
• Valuation: Against the end-June NAV, OCI trades at a 14% discount, despite its absolute (five-year CAGR 17% total NAV return to June 2021) and relative performance. Its above-peer discount is based off the June NAV, while peers are based off more recent (higher) valuations. 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 repeatedly proved. 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 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 14% discount is less than one-year’s average recent NAV total return.