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2 Apr 2019 14:00
Oakley Capital Investments: New research
02/04/19
· Aiming for long-term capital appreciation through investments in Oakley Capital Private Equity Limited Partnerships…
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Oakley Capital Investments (OCI) is an AIM listed investment company and is one of the few remaining directly investing listed private equity funds. It makes the majority of its investments through the Oakley Capital Funds, but on a case by case basis has latitude to invest directly in equity or debt in the portfolio companies.
Oakley Capital aims to deliver long term capital appreciation by backing business operators to grow their companies in three main sectors: Consumer, Education and TMT. The team typically target majority stakes in profitable companies with an EBITDA range of £10m to £50m. They are often the first institutional capital in a business, helping proven entrepreneurs professionalise their companies and achieve the next leg of growth.
The basic ethos of backing proven operators, introduced through Oakley Capital's extended network, has a different feel to a traditional LBO (leveraged buyout) private equity strategy. Certainly, the way Oakley source investments, in complex transactions often without having to participate in auctions (26 of 27 investments have been primary deals), means they are not usually competing with other private equity players.
In 90% of cases the management/business owners they back remain with their companies for the life of the investment, whereas the average for the private equity industry is c. 50%. Many of these business owners invest their subsequent returns with Oakley. To date they have committed over €80m to the Oakley Funds. Overall, the portfolio currently represents investments in eleven growth opportunities. In the recent trading update, the company reported that average EBITDA growth from the portfolio had been 39% for 2018, considerably faster than wider listed equity indices.
Over ten years, OCI has been the third best performer of the remaining listed private equity funds (i.e. excluding Electra) on a NAV total return basis, according to data from Numis. Over this period, the company has delivered NAV total returns of 172% against Numis' average for the LPE peer group of 102%, representing strong outperformance over the longer term. Returns of 46% over the past three years have also been good in absolute terms and relative to the FTSE All Share over the same period.
In 2016 the board introduced a dividend, paying 4.5p per year, equivalent to a yield on the current share price of 2.3%. In the last financial year (to 31st December 2018), the company received gross interest income of £6.8m, against which the dividend cost around £9.2m. As such, the dividend can be seen to be 74% covered by current income.
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