Oakley Capital Investments Limited (OCI) has announced a significant update to its capital allocation strategy that will see it stop paying a dividend and effective 2025, in favour of focusing exclusively on share buybacks. It has also announced a large new fund commitment to Oakley Capital Fund VI.
£20m minimum annual buyback introduced and dividend cancelled
The board has approved a new recurring annual share buyback programme with a minimum commitment of £20m. The move reflects the board’s confidence in OCI’s NAV and its view that OCI’s shares remain materially undervalued relative to NAV due to an excessive discount. This shift follows a consistent pattern of capital returns to shareholders, with £72m worth of shares repurchased and cancelled since 2019.
The buyback is being introduced alongside a shift in income distribution policy. As noted above, OCI will cease to pay an annual dividend, pivoting instead to focus exclusively on share repurchases as a means of distributing profits to shareholders. OCI notes that the dividend – unchanged since its introduction in 2016 – was nominal in size and not supported by sufficient income. The final dividend in respect of the year ended 31 December 2024 will be paid as planned.
€500m commitment to Fund VI
Alongside the buyback announcement, OCI has committed €500m (c.£420m) to Oakley Capital VI, the latest flagship fund from its investment manager Oakley Capital. The fund recently closed at its €4.5bn hard cap and is expected to be deployed over a five-year period. However, OCI does not anticipate a material capital call before 2026.
Fund VI will maintain the strategy employed by its predecessor, Fund V, which is now around 70% invested. This involves targeting founder-led European businesses in the Technology, Digital Consumer, Education, and Business Services sectors. The strategy has delivered strong results to date, with realised returns across Oakley’s funds averaging 3.9x gross money multiple and a 52% gross IRR.
Strong liquidity and refinancing plans
As at 31 December 2024, OCI had total liquidity of £225m, comprising £103m of cash and £122m of undrawn credit facility. The company is currently in advanced talks to refinance its existing facility with one of greater size and duration.
Total outstanding commitments to Oakley funds stand at £1.075bn, though approximately £300m of this is not expected to be drawn. OCI anticipates that the drawn capital will be deployed over a period of roughly five years, aligning with the investment cycle of Fund VI.
[QD comment MR: We think that OCI’s proposals make a lot of sense. The nature of OCI’s underlying investments means that, while it may generate some income, this is ancillary, and investors should expect the bulk of its returns to come from capital growth. This is a well understood feature of OCI and it seems that the overwhelming majority of investors have bought it for its growth potential and not its income stream. It is therefore not particularly surprising that the dividend appears to be having limited impact on OCI’s hefty discount and it seems logical that OCI is refocusing its efforts on repurchasing shares which, at current discounts, are very NAV accretive for remaining shareholders, while also providing liquidity to shareholders that wish to exit.]
