Oakley Capital Investments 14 December 2021
Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by Oakley Capital Investments. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
Oakley Capital are one of a select group of private equity managers who have a listed fund as a cornerstone investor to their limited partner (LP) funds. The listed private equity sector remains a relatively narrow peer group, and so whilst OCI has been a strong performer amongst its listed peers (see Performance), many investors may not appreciate how strongly Oakley’s funds have performed relative to the wider private equity peer group. Recent data from Prequin puts the Oakley Fund III (2016 vintage) in the top 5% of the European Buyout funds of the same vintage on several investment return metrics.
Underpinning NAV growth in recent years has been the strong earnings growth across the portfolio. In the interims, Oakley Capital stated that the average year-on-year EBITDA growth for the portfolio had been 35% to 30 June 2021. This impressive growth trajectory is enabled by the focus on digital businesses, which have been able to transcend many issues that traditional business models have had to contend with (such as rises in inflation or supply chain issues). If the earnings growth continues to come through, the portfolio’s average valuation multiple of 12.3x (EV/EBITDA as at 30/06/2021) appears undemanding. Indeed, further strong NAV growth is not reliant on multiples expanding.
OCI will be reporting the 30/12/2021 NAV in late January, which will enable more meaningful comparisons with the peer group, most of which make quarterly NAV announcements (or more frequent). In 2022 and going forward, OCI will make quarterly announcements, which we view as a good step forward in helping investors understand the NAV trajectory, and over time potentially a narrower discount.
We think Oakley’s focus and expertise in specific sectors, its proven ability to source investments (platform or bolt-on) through its proprietary network of entrepreneurs and its discipline in terms of pricing and valuations means OCI is highly differentiated from peers.
This differentiated approach has paid off for investors, given the strong performance in NAV terms (and share price) over the five years to 30/06/2021 (see Performance). The average holding period for Oakley Capital’s investments has been around four years (Source: Oakley Capital), which compares to the average maturity of the current portfolio being between 3.5 – 4 years. In this context, we would expect that Oakley should be able to take advantage of the current ‘sellers’ market’ in private equity markets.
We believe that evidence from other LPE trusts suggests that OCI will be reporting further progress in NAV growth at the year-end. At the time of the interims, Oakley attributed several key drivers of NAV growth, amongst them IU Group and TechInsights. Both companies represent ‘classic’ Oakley companies, in dominating their niches and using technology to grow. Importantly both companies seem to have been making strong progress since OCI’s interims.
Oakley is in the process of raising Oakley Fund V, and we expect an announcement on how fundraising has gone in Q1 2022. With institutional investors potentially committing capital at NAV (into Oakley Fund IV), we continue to question why the market ascribes a significant Discount to OCI’s shares.
|NAV growth largely driven by attractive secular growth trends and portfolio-company performance
|Concentrated portfolio means that returns can be materially impacted by specific company performance
|Oakley Capital has a clear edge in a competitive market
|Private companies offer limited liquidity, and returns can be lumpy
|Board and manager enacting progressive changes towards ‘best in class’, which should reduce discount over time
|Private-equity funds charge relatively high fees