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As expected, OCI’s 28 July trading statement was positive. The NAV grew from 403p at end-2020 to 445p at end-June 2021, a total return NAV of 11% on end- 2020 and 26% on 1H’20. We have raised our year-end forecast from 433p to 470p. OCI invested £95m – mainly through Fund IV (idealista, Dexters and ICP Education) and through the Origin Fund (ECOMMERCE ONE). Sale proceeds were £51m, cash was £172m (21% NAV), and outstanding commitments were £438m. Post 30 June, Fund III sold its ACE Education investment, and Origin re-invested in it. More details will be given with the interim results on 9 September.

  • Portfolio company performance: 14 companies (52% of NAV) grew their revenues at or above expectations in the period. Four (14% of NAV) have seen a modest COVID-19 impact. Three (29% of NAV) continue to be significantly impacted by ongoing, Europe-wide, COVID-19-related restrictions.
  • Hardman & Co view: OCI had said it had a good pipeline and the cash to take such opportunities. The acquisitions and realisations had been announced, and so were known. The “new” news in the trading statement is the continuing strength of the organic growth in the portfolio. This was promised, and has been delivered.
  • Valuation: OCI trades at a 21% discount to NAV, despite its absolute (five-year CAGR total return of 16% to end-2020). The company is moving to quarterly reporting – so fair value changes are recognised more frequently, and investors can have a more regular view of value accretion. OCI yields 1.3%.
  • Risks: While OCI’s costs are slightly above-average, post-expense returns are still market-beating. Sentiment towards PE in downturns is likely to be adverse, even though outperformance has been delivered consistently. OCI’s portfolio is concentrated. 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 origination and active management skills. Oakley Funds focus on mid-market, tech-enabled Western European companies that operate in the consumer, education and technology sectors. Accounting and governance appear conservative. There are risks – primarily sentiment-driven – around costs, cyclicality, and the liquidity and valuation of private assets. Buying an outperforming business at a discount is attractive, in our view, but we believe investors should focus on the long-term compounding NAV growth.

 

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