There has been a raft of positive news flow from private equity investment company Oakley Capital (OCI:220p) in the past month. The most important of which is this morning’s news of a strategic investment from Warburg Pincus, a global growth private equity firm, and TA Associates, an existing shareholder, in one of Oakely’s investee companies, Inspired, a co-educational, non-denominational, independent school group.
Having first invested in the business in 2013, Inspired has grown rapidly by building new schools and acquiring existing successful ones around the world and is now one of the leading global groups of premium schools, educating over 38,000 students in 51 schools across five continents.
As part of the transaction, Oakley is realising €40m (£35.3m) by selling down part of its stake, but will still retain an investment in Inspired worth €102m (£90m). The uplift from the sell down proceeds and the retained investment adds a thumping 21p a share to Oakley’s end 2018 net asset value (NAV) per share of 281p. Analysts at Liberum Capital estimate Oakley’s proforma NAV per share is now around 308p.
Education is a significant area of investment for Oakley, accounting for 30 per cent of the company’s 2018 year-end NAV. The focus has been on investments in premium private schools, higher education and after-school tutoring. That’s because demand for education is growing strongly in both emerging and developed markets, supply is limited by public spending constraints, and there are high barriers to entry. Moreover, education markets are typically non-cyclical, as parents place great importance on the investment they make in their children’s education. Oakley’s other investments in the sector are Career Partner Group, the fast-growing private university in Germany; Schülerhilfe, Europe's largest after-school tutoring business; and AMOS, one of the leading international business schools in France.
Making waves
Oakley is also making waves in marine education too. Having previously successfully invested in Headland Media, a provider of media and entertainment services to the offshore and shipping sectors, the private equity group has announced a £25m investment to partner with the management teams of marine e-learning technology groups Seagull and Videotel, to acquire majority stakes in the businesses.
Over the past four decades, Videotel and Seagull have established themselves as the best-in-class providers of e-learning to the maritime sector globally. In fact, every year they provide over 20,000 ships and installations with comprehensive and up-to-date compliance, risk and safety training that ensures adherence to International Maritime Organisation requirements. In 2018, the two companies generated combined revenue of $50m.
It’s easy to see why Oakley sees investment upside. That’s because the digital transformation taking place in the shipping industry, as well as the increasingly complex regulatory framework, offers a major opportunity for e-learning providers. The management teams of Seagull and Videotel believe that this can be most effectively exploited by working together as a combined entity by collaborating and sharing knowledge and resources in order to provide their respective customers with a greater level of product and services.
| Bargain Shares Portfolio 2016 performance | |||||
| Company name | TIDM | Opening offer price (p) 05.02.16 | Latest bid price (p) 30.05.19 | Dividends (p) | Total return (%) |
| Bioquell (see note one) | BQE | 125 | 590 | 0 | 372.0% |
| Volvere | VLE | 419 | 1150 | 0 | 174.5% |
| Gresham House | GHE | 312.5 | 580 | 3 | 86.6% |
| Bowleven (see note two) | BLVN | 18.935 | 13.5 | 15 | 64.4% |
| Oakley Capital | OCI | 146.5 | 216 | 13.5 | 56.7% |
| Gresham House Strategic | GHS | 796 | 1070 | 32.25 | 38.5% |
| Juridica (see note three) | JIL | 36.1 | 14 | 32 | 27.4% |
| Mind + Machines (see note four) | MMX | 8 | 7.5 | 0 | 2.8% |
| French Connection | FCCN | 45.7 | 41.4 | 0 | -9.4% |
| Walker Crips (see note 5) | WCW | 44.9 | 25 | 5.59 | -31.9% |
| Average return | 78.1% | ||||
| FTSE All-Share Total Return | 5180 | 7181 | 41.8% | ||
| FTSE AIM All-Share Total Return | 747 | 1080 | 47.0% | ||
| 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). | |||||
| 5. Simon Thompson advised selling Walker Crips shares on Monday, 4 March 2019 at 25p ('Bargain Shares Portfolio updates', 4 March 2019). | |||||
| Source: London Stock Exchange share prices | |||||
Investors can see the upside for Oakley’s shareholders too which is why the company’s share price, at 220p, hit another all-time high this morning on news of the valuation uplift from the aforementioned Inspired transaction. Including dividends of 13.5p a share paid since I first suggested buying Oakley’s shares, at 146.5p, in my 2016 Bargain Shares portfolio, the holding has produced a 56.7 per cent total return on an offer-to-bid basis, outperforming both the FTSE All-Share (total return of 41.8 per cent) and FTSE Aim All-Share (total return of 47 per cent). The portfolio itself has massively outperformed too, rising by 78 per cent in value even though I have recommended banking gains on holdings to realise 91 per cent of the original capital invested, thus generating a much higher return than these benchmark market indices and at a much lower risk given the substantial cash weighting.
I firmly expect Oakley’s outperformance to continue as there is scope for the realisation of further substantial gains on disposals of its stakes in investee companies, and at well above book value. There is also a high likelihood of further valuation uplifts driven by the increasing profitability of those investee companies, too. Even ignoring that possibility, the shares clearly offer value, priced on a 29 per cent discount to proforma NAV, an unwarranted 8 percentage point deeper discount than Oakley’s private equity peer group average. Buy.
■ Stock clearance offer. Simon Thompson's latest book Successful Stock Picking Strategies and his previous 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.
Subject to stock availability, each book can be purchased at the promotional price of £9.95 per book plus £2.95 postage and packaging, or both books can be purchased for £19.90 plus postage and packaging of only £3.75. The books are being sold through no other source and are normally priced at £16.95 per book plus postage and packaging. A detailed outline of the content of each book can be viewed on YPDBooks website.
