September 2022 Monthly

The 2Q trading update noted i) NAV per share of 630p and NAV of £1,119m, ii) a total NAV return per share of 11% since 31 March 2022 (+61p) and of 17% since 31 December 2021 (+94p), iii) £30m in new investments during the period, iv) ca.£112m share of sale proceeds expected post period-end, and v) new £100m revolving credit facility adds flexibility and liquidity. 67% of the increase in the portfolio's value came from EBITDA growth and 33% from multiple expansion; the latter driven by exits, all of which were at large premiums to prevailing book values. Of the 63p NAV gain, 46p came from valuation gains, and 11p from forex. We will review our forecasts in the light of the details given with the 8 September results.

• Partial exit from Seedtag: On 27 July, OCI announced the partial exit from Seedtag with its share of proceeds being £13m, adding 4p (1%) to the NAV. The critical issue is that a digital advertising business was sold at a premium to carrying value showing the accounting conservatism in the NAV.
• Results preview: We expect a continuation of recent results themes: i) revenue/EBITDA growth well ahead of listed markets and consequently a low PEG ratio; ii) focus ion sectors with secular growth; iii) value added by the entrepreneur network; iv) stable debt metrics; and v) resilient outlook.
• Valuation: Against the end-June NAV, OCI trades at a 36% 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 1.1%.
• 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. There is potential upside from the one-off closing of the discount, but this may be considered against the compounding benefits from NAV growth.