Oakley Capital Investments Share Discussion Threads

[davebowler] 11/5/2023 09:53

Bit more from Liberum- Mkt Cap £847m | Share price 477.0p | Prem/(disc) -28.6% | Div yield 0.9%EventOakley Capital Investments held a CMD yesterday which included presentations by Marvin Lange (CFO of IU Group) and Paul Barry (CEO of Phenna Group). One of the central themes across Oakley's core education, technology, and consumer sectors was the extent to which several of the investments are well-positioned to benefit from the opportunities provided by generative AI.  We focus on education and some of the commentary from the investment manager in this commentary. We will review some of the comments in technology and consumer in our weekly note.Education Net of the agreed IU Group realisation announced yesterday, education represents 27% of OCI's total look-through investments. It remains an important driver of new investments and future returns. PE representation remains fairly low compared to sectors like healthcare, where PE M&A deal value was 8.5x higher at $144bn in 2022. ?On the IU Group realisation, OCI noted that Fund III's exit from IU Group will be the largest capital gain of any Oakley fund in its history. The c.£240m proceeds due to OCI represent a 76% IRR, based on an initial investment of £31m and total proceeds of £326m (including previous IU Group distributions). A realisation event had to take place within the next year or two as Fund III neared the end of its life. Moreover, IU Group's next phase of growth requires further investment into AI and international growth and some of these investments may take some time to deliver returns. This was therefore seen as the optimal time for the investment to leave Fund III. In addition to overviewing how IU Group has grown to become Germany's leading university by student numbers, IU Group's CFO, Marvin Lange, discussed how the company has been working with OpenAI platforms well in advance of ChatGPT's launch. AI provides a critical tool to further develop one of the central elements to the company's aim to further evolve and personalise how higher education is carried out beyond classrooms and exams, which was the most economically viable way historically. ?Beyond IU Group, Oakley has been expanding its K12 (Kindergarten through to 12th grade) exposure with recent investments in Thomas's while progress continues elsewhere at companies such as Affinitas. Education was described as a $3.5trn market with only about 4% of the 11k bilingual international schools having been consolidated to date. Investment manager commentsSummarising some of the fund-specific comments from the investment manager, it was noted that OCI is very important to Oakley, with its c.30% representation in each Oakley fund making it the largest investor by a distance. With respect to OCI and the wider direct PE sector's systematic discount, some of the key factors behind this were identified as 1) the sell-off in illiquid assets; 2) confidence in valuations and future growth; and 3) some of the idiosyncracies in PE that are perhaps not well-understood at times. On point one, the sell-off in alternative assets has affected all investment companies. We have noted that addressing discounts more broadly might require some combination of good performance, share buybacks, and realising assets to validate NAVs. On both a NAV and share price TR basis over five years for funds with a current market cap above £100m, OCI has been the best-performing AIC fund. On a share price TR basis, OCI's annualised 23% return is more than 6ppt higher than the second-best performer.While further details will follow owing to commercial sensitivity, the IU Group realisation provides a strong underpin to valuation, particularly when viewed in the context of the uplift applied in 2022.On share buybacks, OCI has been far more active than its direct PE peers. In value terms, we estimate it repurchased an average £8m per annum between 2021 and 2022. Along with dividends paid, that is c.£16m paid out to shareholders per annum, or c.1.9% of the current market cap.

[1968jon] 10/5/2023 10:31

Thanks for that Dave Bowler - I don't have an "in" at Libs, so I always appreciate you posting their view.
It will be interesting to see what they say about the deal at the presentation later.

PE funds frequently sell positions to themselves in later funds - when this triggers carry in earlier funds, the punters can get upset. The marks used can also be a topic of discussion. Fund x sells to fund y at a large uplift to nav with a new "investor" alongside. Easy way to bump multiples.

Oakley themselves (I don't think) have commented yet. If this is OCI realising a large gain and having a smaller position at the same mark - seems good. (I know of micro p.e funds who let investors out at NAV annually).
Given the huge increase in cash the discount has jumped massively.

[davebowler] 10/5/2023 09:57

Liberum-
IU Group realisation underpins NAV and Oakley strategy
Analyst: Shonil Chande

Mkt Cap £846m | Share price 476.0p | Prem/(disc) -28.7% | Div yield 0.9%

Event

Oakley Capital Fund III has agreed to realise its stake in IU Group with Oakley Capital Investments' share of the proceeds set at c.£240m. The sale price is at the 31 March 2023 carrying value. As at 31 December 2022, IU Group was OCI's largest look-through investment, with a £243.5m carrying value representing 20.9% of NAV. IU Group's valuation increased by c.85% in 2022 (+64p impact to OCI). The sale process for IU Group had commenced by late 2022. The c.1.4% difference between the December 2022 valuation and the proceeds due to OCI appears to reflect FX.

As part of the transaction, OCI will indirectly invest c.£67m in IU Group through Fund V. IU Group was acquired by Oakley Capital Private Equity III and a number of its underlying investors in 2017, with Fund III investing €85m. OCI's indirect contribution in 2017 was £30m.

IU Group is the largest online university group in Germany. It delivered revenue and EBITDA growth of 39% and 38% in 2022, respectively. Enrollments have increased at a c.37% CAGR to over 100k since 2017.

Subject to completion, OCI's available resources cash resources increase by £174m to £340m.

Liberum view
Corporate activity with respect to IU Group was likely this year and the valuation achieved provides a strong underpin to portfolio valuation. IU Group has been a hugely successful investment with £240m reflecting an 8x MOIC to OCI's original look-through investment. The transaction will see IU Group's proportional size, in NAV terms, reduce from 20.9% (Dec-22) to c.5.7%.

The Oakley funds have consistently delivered strong returns from investing in founder-led businesses, with a focus on digital disruptors exposed to megatrends. Earlier in February 2023, Fund V raised €2.85bn.

We have a BUY rating on OCI's shares with a target price of 653p, based on a 15% discount to the 12m NAV per share forecast of 767p.

[rik shaw] 10/5/2023 09:14

Not sure what is technical about discussing an assumed valuation in a fact sheet and a sale price at that value or at a premium !? It's pretty fundamental to investing.

[ali47fish] 10/5/2023 09:00

all the comments here go over my head- can we be less technical

[ayl30] 10/5/2023 08:39

That was going to be my next point. If they buy and sell to themselves how do we know we are getting the right value. To sell at carry volume suggests the market would not put a premium on it in an open market? Are they just shuffling the pack to provide value to the other funds?

[rik shaw] 10/5/2023 08:30

The other point I pick up from this RNS is that the sale is at carry value. They have previously been keen to highlight that most sales have been at a significant premium to book value but that doesn't look to be the case here. The Dec 2022 factsheet lists the UIG stake at value of £243M.

[donald pond] 10/5/2023 08:07

I suspect part of it is because Oakley (as opposed to OCI) are always juggling their underlying funds, which tend iirc to have a fixed life. So as one is being launched another might be closing down and it makes sense to transfer the assets across. I think the group are keeping the investment but OCI is reducing exposure because it has become a bit outsized. There's a lot of dry powder now though

[rik shaw] 10/5/2023 07:44

Yes that's how I read it, though I never understand why they sell and then buy back a stake in a different fund.

If I had an investment that had grown 85% in 2022 and was still growing at a pace I would think twice about selling, but then I guess recycling cash is what these PE funds are all about.

[donald pond] 10/5/2023 07:41

It is good, in that it confirms the valuation. They've sold down a chunk of it, reducing the OCI stake from £240m to £67m is my reading.

[ayl30] 10/5/2023 07:30

Can someone decode todays rns? Sounds a good deal? Capital Markets Day being held this pm

[riverman77] 26/4/2023 17:58

I sold out of this a couple of weeks ago after a very strong run. It's a great trust and will certainly keep on watchlist in case it slips back, but probably better value elsewhere now (with a number of PE funds on close to 50% discounts). Also had slight concerns that the multiples had crept up - they used to be around 12x but now closer to 16x. The high fees are of course also an issue for some, although I can put up with these as long as they continue to deliver.

[makinbuks] 26/4/2023 17:16

I think Libernum are hinting that the multiple of 15.9 might be on the high side.

Hardman similarly commented "The 15.9x multiple is somewhat above the current P/E ratios for the European markets as a whole (12.7x)1, but it is in line with the MSCI World Index (15.9x) and well below the ratings given to the growth sectors in which Oakley invests (European tech
average: 22x)2.

Libernum don't mention that 13% of NAV is in loans to Time Out and North Sails so such ratios are irrelevant there.

I still think that a refinancing of the North Sails debt, together with the assurance that such loans will not be made again, could be the catalyst for a narrowing of the discount

[cwa1] 26/4/2023 17:05

It does mention in the Q1 period to 31 March 2022 in the narrative, which does throw you a bit to start with. Presumably just a typo...

[rik shaw] 26/4/2023 16:24

It's commentary on today's trading statement:

[ali47fish] 26/4/2023 13:10

dave what date was this issued please

[davebowler] 26/4/2023 11:39

Liberum-Oakley Capital Investments' NAV per share increased by 1% to 668p in the Q1 period to 31 March 2022. This represented a 1.2% NAV total return. Performance was driven by a +15p (+2.3%) impact from an uplift to portfolio value, partially offset by 5p (-0.8%) of FX losses. The 15p valuation uplift was split equally between EBITDA growth and multiple expansion. All of the underlying valuations are as at the end of Q1.Post-period, OCI has made £27m in look-through investments, including £14m in Thomas's London Day Schools to support capex and development projects. OCI's total outstanding commitments to the Oakley Funds at the period-end were £886m, out of which at least £200m is not expected to be drawn. OCI had cash on the balance sheet of £166m (14% of NAV), Commitments are expected to be drawn over the next five years, funded from existing cash resources and expected proceeds from realisations. Liberum viewUnderlying performance was solid in Q1, particularly when viewed against tough comparators (weighted average organic EBITDA growth of 22% in FY22). About 70% of underlying revenues are recurring or subscription-based, with the focus on digital disruption reducing the need for wider market growth.During the holding period, the valuation multiple for Oakley's portfolio companies tends to remain relatively close to the acquisition multiple (average entry EV/EBITDA multiple of 13.9x at the end of FY22). The most recently disclosed EV/EBITDA weighted average multiple was 15.9x at 31 December 2022. While a repeat of the five realisation events in FY22 as unlikely this year, there is potential for fewer but more individually impactful events.     While we regard the 30% discount to NAV as attractive, the strongest reason for owning the shares, over several years now, has been NAV growth (+23% annualised over five years - the best amongst AIC alternative funds). Too much weight can be placed on the potential for discount narrowing as a source of returns. Ultimately, the quality and durability of the portfolio holdings drive performance. We have a BUY rating on the shares with a target price of 653p, based on a 15% discount to the 12m NAV per share forecast of 767p.  

[makinbuks] 26/4/2023 10:00

Nice update today, looks like we tried to go higher but the general market malaise has dragged us back

Slightly surprised the 1.25% rise in NAV is said to come equally from trading and multiples. I was expecting multiples to fall

[cwa1] 26/4/2023 09:37

TBF I can't comment on Barclays currently. I only know they were dreadful and incredibly difficult to deal with on top of being the most expensive online broker I had at that time. Glad to hear they've improved, there was certainly room for it ;-)

[hpcg] 26/4/2023 09:18

CWA1 - Barclays have improved their offering recently. I thought they were excellent a decade ago, even offering structured products, then they scaled back to a banal private investor LSE only operation, which they have since reversed with the return of some developed markets.
IMO the best offering for buying complex products is IG. For example they are the only one of my brokers to offer any of the CoCo ETFs. They are also by far the cheapest to trade with. However they don't cover everything and so several brokers is the only way to go.

[hiddendepths] 25/4/2023 20:36

I had no trouble buying in my ISA with II. I've been with them for quite a few years. Not happy that they've been taken over by Abrdn but they say it'll make no difference and it hasn't so far!

I suspect I've filled in an "I know what I'm doing" thing at some point!

[1968jon] 21/4/2023 08:39

As mentioned before, when OCI moved their listing from AIM to the "Specialist Fund Segment" of the main market, many brokers were unable to allow clients to buy them. I am not able to buy OCI in my ISA with iweb/Halifax. Maybe Barclays have updated their policies/processes and have removed that segment from their approved list. understand that with some brokers (not iweb) you can fill in a generic form to say "you know what you're doing" and they will allow you access again.

[cwa1] 20/4/2023 18:08

Barclays were the worst online broker I ever used and forced me to move away over a decade ago. Sounds like they haven't improved any...

[zdapa] 20/4/2023 17:40

Tried buying Prs reit from Barclays. As a result I have just spent the afternoon looking at moving my isa and my wife's isa from Barclays.

[davebowler] 20/4/2023 15:58

Barclays blocked my purchase too, on some flimsy excuse.