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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 (FY’20 11.8x) and 3.5x net debt/EBITDA (FY’20 3.9x), 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 its entrepreneur network and growth business model. Against this sustained growth, with proven downside protection, the 21% 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.
  • Sustainable growth businesses: Oakley’s value creation is driven by EBITDA growth in its investee companies. They are in growth sectors, have tech-enabled and digitised models (70%), and have recurring revenue streams (75%). Oakley adds incremental skills, enhancing downside protection.
  • Valuation: Against the end-June NAV, OCI trades at a 21% 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 1.3%.
  • 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 21% discount is about one-year’s average recent NAV total return.
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