Oakley Capital Investments (OCI) has a unique feel when compared to the listed private equity peer group. Aside from a focus on education, consumer and technology sectors, the recent capital markets day emphasised the entrepreneurial roots of Oakley Capital as manager, but also demonstrated a growing institutional feel as the team has expanded (see Management).
Digital disruption and the opportunities it presents has long been a recurring theme in OCI. This placed OCI well at the beginning of 2020, and portfolio companies have clearly been nimble in adapting to the digital opportunities presented to them during lockdown. 53% of the portfolio by value had digital delivery models at the start of the year, which had risen to 76% by the end of 2020. This has helped ensure resilience and growth, with a NAV total return of 18% achieved for 2020 (see Performance).
Following the recent capital markets day, we discuss many of the exciting businesses investors in OCI are exposed to in Portfolio. Across the three specialist sectors that Oakley focusses on, the recurring themes from the capital markets day presentations were the strong operational performance during 2020 and into 2021, the exciting future growth potential, and also how entrepreneurial founders of businesses represent a key part of Oakley Capital’s DNA. Oakley aim to continue to build on their track record of being the first institutional investors in growing companies and create “product” for other private equity firms to buy, as was the case with WebPros sold to CVC.
Over the past five years, OCI has delivered good NAV and share-price total returns relative to peers and equity indices. The next NAV as at 30 June 2021 (announcement due end of July) will give more colour.
OCI’s strong balance sheet is a differentiator. It went into the market sell-off with net cash on the balance sheet of c. £250m, or 36% of estimated net assets. This put the trust in a strong position, and Oakley Capital has made a number of interesting investments since then, in what is a competitive market. We estimate that OCI now has net cash on the balance sheet of c. £162m, representing 22% of the estimated NAV.
Oakley’s track record is strong – both in absolute terms, but also relative to peers, which we discuss in Performance. For investors who want a focused private-equity portfolio, we think OCI looks exposed to plenty of exciting growth drivers from its Portfolio of niche businesses that are leaders in their field.
It is perhaps in recognition of this fact that the Discount has narrowed considerably, which currently stands at 12% to Numis’s adjusted NAV. However, we believe this is more than justified by the good long-term performance and the resilience exhibited by the portfolio during 2020. We believe that should OCI’s strong performance continue along with the higher standards of governance and investor communication, OCI may be rewarded over time by a rating more in line with HgCapital (premium of 1%), rather than the wider peer group average. With OCI clearly offering a differentiated proposition, as well as the best liquidity position of the peer group, the shares should continue to attract interest.
|Strong long-term NAV growth, driven by portfolio-company performance||Concentrated portfolio means that returns can be materially impacted by specific company performance|
|Capital markets day highlighted the focus and expertise that gives Oakley Capital an edge in a competitive market||Private companies offer limited liquidity, and returns can be lumpy|
|Shares trade on a 12% discount to Numis's NAV estimate, with 30 June NAV announcement as a potential catalyst for further appreciation||Private-equity funds charge relatively high fees|