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Exploit Oakley’s deep discount to book value

Shares in the private equity investment company are being rated on a deep discount to NAV even though it has produced a bumper investment performance last year and increased NAV per share by 181 per cent since IPO in August 2007
February 6, 2019

Shares in Oakley Capital (OCI:193p) are within pennies of their autumn all-time high after the private equity investment company reported a 15 per cent-plus rise in net asset value (NAV) per share to between 278p and 281p in 2018, representing a sharp uplift on the half-year NAV per share of 259p when I covered the interim results (‘Oakley’s bumper realisations’, 17 September 2018). The board also intends to declare a final dividend (2.25p last year) when it releases annual results on Thursday, 14 March 2019.

Disposals of stakes in Italy’s leading online comparison website, Facile.it, Germany-based online price comparison website Verivox, internet dating site Parship Elite and Damovo, a leading European communications company, completed at a combined 36 per cent premium to book value, adding 14p a share to Oakley’s NAV. These disposals highlight the returns that Oakley is achieving by focusing the portfolio on asset-light businesses exhibiting strong underlying structural market growth, strong cash conversion and accelerated performance through effective management.

Clearly, Peter Dubens, the founder of Oakley, is upbeat on his company’s prospects as he has just purchased 200,000 shares at 188p each, and now holds 9.55m shares, or 4.67 per cent of the issued share capital. It’s not hard to see why he has upped his stake as Oakley shares are priced 31 per cent below spot NAV, well shy of the peer group average discount of 23 per cent.

 

Bargain Shares portfolio 2016 performance 
Company nameTIDMOpening offer price (p) 05.02.16 Latest bid price (p) 04.02.19Dividends (p)Total return (%)
Bioquell (see note one and article)BQE1255900372.0%
VolvereVLE41910200143.4%
Bowleven (see note two)BLVN18.93516.961573.5%
Gresham HouseGHE312.5440040.8%
Oakley Capital OCI146.519011.2537.4%
Juridica (see note three)JIL36.1143227.4%
Gresham House StrategicGHS79687532.2514.0%
Mind + Machines (see note four)MMX87.502.8%
French ConnectionFCCN45.7410-10.3%
Walker CripsWCW44.9325.59-16.3%
Average return    68.5%
FTSE All-Share Total Return  51806899 37.1%
FTSE AIM All-Share Total Return 7471035 41.8%
      
Notes:
1. Simon Thompson advised buying Bioquell's shares at 149p in February 2016. Bioquell bought back 50 per cent of shares in issue at 200p each in June 2016 through a tender offer and Simon recommended buying back the shares in the market at 145p to give an average buy in price of 125p (‘Bargain shares updates’, 22 June 2016). Company was taken over at 590p cash per share in January 2019.
2. Simon Thompson advised banking profits on half your holdings in Bowleven shares at 33.75p, and running the balance ahead of drilling news at the Etinde prospect in Cameroon in the second quarter of 2018 (‘Hitting pay dirt', 9 Apr 2018). The company subsequently paid out a special dividend of 15p a share on 8 February 2019. The total return reflects this share sale.
3. Simon Thompson advised buying Juridica's shares at 41.2p in February 2016. Juridica subsequently paid out a special dividend of 8p a share in June 2016 and Simon recommended buying shares in the market at 61p using the cash proceeds to take the average buy in price to 36.1p (‘Brexit winners', 1 August 2016). Juridica then paid out a special dividend of 32p a share in September 2016 and total return reflects this distribution. Simon advised selling the holding at 14p ('Taking Q1 profits and running gains', 4 April 2017), hence the price quoted in the table.
4. Simon Thompson advised buying Mind + Machines shares at 8p in February 2016. Mind + Machines subsequently bought back 13.22 per cent of the shares in issue at 13p a share. The total return reflects this capital distribution. Simon advised selling the entire holding at 7.5p which is the exit price stated in the table ('Strategic acquisitions', 9 May 2018).
Source: London Stock Exchange share prices

 

So, having included Oakley’s shares at 146.5p in my market-beating 2016 Bargain Shares portfolio, and banked dividends of 11.25p a share to produce a total return of 40 per cent – bang in line with the rise in the FTSE Aim All-Share index in the same three-year period – I feel the deep share price discount to spot NAV is harsh for a company that has delivered a 181 per cent increase in NAV since its IPO in August 2007. Buy.

 

■ Simon Thompson's new book Successful Stock Picking Strategies and his second book Stock Picking for Profit can be purchased online at www.ypdbooks.com, or by telephoning YPDBooks on 01904 431 213 to place an order. The books are being sold through no other source and are priced at £16.95 each plus postage and packaging of £2.95, or £3.75 if you purchase both books. Details of the content of both books can be viewed on www.ypdbooks.com.