- Net asset value per share up from 662p to 684p
- 17 per cent of book value in cash
Private equity investment company Oakley Capital Investments (OCI:465p) delivered a net asset value (NAV) total return of 4 per cent last year, but there should be no complaints from investors who enjoyed an 18 per cent total shareholder return (TSR). It takes the five-year annualised TSR to 24 per cent, during which time those who bought in when I announced my 2016 Bargain Shares Portfolio have trebled their money.
Oakley’s portfolio is focused on three core market segments – technology (23 per cent of portfolio), education (21 per cent) and digital consumer (42 per cent) – which delivered 14 per cent organic growth in cash profit, a key driver behind the valuation uplift. It highlights the portfolio’s ability to sustain growth rates even during challenging economic conditions.
The fact that two-thirds of portfolio companies operate a subscription-based or recurring revenue business model means that they are far less exposed to short-term falls in customer demand. The majority of Oakley’s investments also have defensive characteristics, benefit from strong structural market growth, and have asset-light business models and high cash conversion rates.
Importantly, portfolio companies’ leverage ratios (4.2 times cash profit to net debt) are well below the private sector industry average (six to seven times), and last year’s average entry multiple on new investments (12.4 times cash profit to enterprise valuation) was 24 per cent below the portfolio average. So, as investee companies mature, they benefit from multiple expansion and organic-growth-driven valuation uplifts. The 32 per cent share price discount to NAV fails to reflect Oakley’s strong attributes. Buy.
■ Special offer. Simon Thompson's books Successful Stock Picking Strategies and Stock Picking for Profit can be purchased online at www.ypdbooks.com at the special discounted price of £5 per book plus UK P&P of £4.95, or £10 for both books plus UK P&P of £5.75, subject to stock availability.
They include case studies of his market beating Bargain Share Portfolio companies outlining the characteristics that made them successful investments. Simon also highlights other investment approaches and stock screens he uses to identify small-cap companies with investment potential. Full details of the books’ content can be viewed on www.ypdbooks.com
