Oakley Capital Investments (OCI) has seen strong performance so far in 2019, with a NAV total return of 14% over the six months to 30 June. This has been driven by the rise in value of two investments in particular (Inspired and Time Out), but also by the average 31% EBITDA growth of the portfolio companies. Read more about the portfolio's performance here.
The portfolio is currently constituted of 15 investments. Oakley Capital (Oakley), the investment adviser, has expressed near-term optimism for much of the portfolio, but highlighted two companies with significant momentum: Career Partner Group (7% of NAV) and WebPros (8.8% of NAV). Assuming their rapid growth metrics are maintained, it seems likely that these investments will be material contributors to OCI’s continued NAV growth.
Alongside the strong portfolio performance, Oakley has reported an uptick in investment activity. Over the six months, the Oakley Funds have made five investments, amounting to OCI capital deployment of £85m. These investments were all within Oakley’s favoured sectors (consumer, education and TMT) and types of company (mid-market, European, founder-led and market leaders). Also, the investments were acquired outside of auction processes, via complex transactions and often carve-outs. Click here to find out more about the fund's process and portfolio.
In harnessing their network of proven business founders and entrepreneurs, the managers have been able to buy these businesses at attractive prices – with an average valuation multiple of 11.2x on an EV/EBITDA basis, compared to the peer group average of 13.4x (Source: Oakley Capital).
Whilst the adviser and OCI board are positive on prospects, OCI’s share price discount to its NAV remains wide. Many of the corporate governance measures undertaken by the board to enhance shareholder value have been well received and may have contributed to the discount narrowing in the first half of 2019. However, the share price has lagged subsequent strong NAV growth and the discount has widened again. At 29%, OCI’s discount (to the 30 June 2019 NAV) remains wide relative to its history and its peers. See more detail on the trust's discount here.
OCI is a differentiated growth opportunity, with a concentrated portfolio of direct private investments. The Oakley investment team continue to demonstrate that their approach delivers impressive NAV growth, with the last three and a half years proving particularly strong.
Underlying this, average EBITDA growth of the portfolio companies to June 2019 was 31%. This is clearly a very strong growth rate, and only marginally behind the 35% portfolio EBITDA growth HgCapital Trust (HGT) reported for the 12-month period to 30 June 2019 (the strongest trading figures it has ever reported). Comparing the valuation multiples of OCI and HGT, OCI's portfolio companies are currently valued at an average EV/EBITDA of 12x, whilst HGT’s top 20 companies are valued at 19.5x. This valuation difference is stark, particularly in the context of the share price discounts each company trades at – HGT currently trades on an NAV discount of 3%, against OCI’s 29% discount.
In our view, OCI represents an opportunity to invest in an asset class that is being overlooked by public market investors. In tandem with the discount to NAV, the opportunity for near-term realisations and refinancings from some of the fast-growing and maturing portfolio companies could provide near-term catalysts for the share price which would enhance our view that now is an interesting time to look at an investment in OCI.
|Strong long-term NAV growth, driven by portfolio company performance||Concentrated portfolio returns can be materially impacted by an underperforming investment|
|Conservative valuations mean that realisations present a possible near-term catalyst for further NAV growth||Private companies offer limited liquidity, and returns can be lumpy|
|Shares trade on a 29% discount to NAV. A shift in perception towards OCI could accelerate shareholder returns||Private equity funds charge relatively high fees|