In this note, we explore the factors that have driven the market-beating 22% YTD 2022 NAV growth, the 15% growth we expect in 2023 and the 35% NAV discount. In addition to fuelling returns, further exits with uplifts to carrying value (long-run average 50%) should reinforce confidence that portfolio valuations are conservative. Cash realisations from the portfolio give additional comfort – as do the £302m of liquidity and £474m of investments held for more than three years – that investment commitments will be delivered. We highlight the resilience of the portfolio in the past, and note the incremental value added in downturns, with Oakley Capital Investments Limited (LON:OCI) backing resilient, profitable businesses with sticky revenues.
- Robust valuation: Inter alia, this report reviews why investors can trust the current valuation. Putting aside independent checks and balances, the bottom line is that other investors pay more for the assets than the level at which Oakley values them (uplifts on exit), and there is no incentive for Oakley to inflate the valuation.
- Resilient growth: (see chart, page 12) is driven by a high-conviction investment strategy, backing founder-led, digitally disruptive and profitable business models in three key areas of structural trends. In a downturn, the advantages of this focus are more evident, with recurring revenue streams. Also, Oakley’s operational, strategic and financial support, investee company low leverage and strong customer demand are more valuable.
- Long-term outperformance and opportunity: OCI’s five-year share total return to 25 November 2022 was 2.9x, despite the discount. OCI trades at a 35% discount against the latest NAV, despite its absolute and relative performance. Any closing of the discount is the “icing on the cake”. NAV growth (20%+ CAGR over five years) is driven by underlying company EBITDA growth.
- 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, 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 focuses on mid-market, tech-enabled European companies that operate in the technology, consumer and education sectors. This space provides structural growth, as well as opportunities for Oakley Capital to add operational, strategic and financial value to the business acquired. Accounting and governance appear conservative, with an average 52% uplift to carrying value on exit since inception. There are risks – primarily sentiment-driven – around costs and cyclicality, as well the liquidity and valuation of the underlying private assets.
