October 2022 Monthly

We reviewed OCI detailed results in our note 1H’22: results prove NAV real, resilient and growing published on 20 September 2022. We highlighted why its latest disclosures should, abate any worries about whether the NAV was real or whether it could grow, negating what we believe is driving a sector wide NAV discount. In particular, we noted: i) realisations, on average, 52% above carrying value, ii) 18% growth in investee company EBITDA (which accounts for around three quarters of NAV growth), iii) a PEG ratio of 0.8x, iv) 93% of multiple expansion driven by exit uplifts, and v) average EV/EBITDA ratings below listed market levels, despite subsectors that attract high ratings. Oakley adds value to companies in all economic environments, especially uncertain ones.

• Robust valuation: This report reviewed why investors can trust the current NAV. Putting aside independent checks and balances, the bottom line is that other investors pay more for the assets than that at which Oakley values them (uplifts on exit), and there is no incentive for Oakley to inflate the valuation.
•  Sustained outperformance: OCI’s five-year NAV total return CAGR to June 2022 was 23%. It is focused on structural growth sectors and subsectors with proven economic resilience. Oakley’s operational, strategic and financial support is incrementally more valuable in a downturn than in good times.
• Valuation: Against the end-June NAV, OCI trades at a 39% discount, despite its strong absolute, 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.