Oakley Capital Investments (OCI) is to sell £272m (313m euro) of stakes in five Oakley Capital private equity funds while its fund manager is in early talks to sell Phenna, the UK testing group that accounts for 13% of the investment company’s assets.
The sale of interests in Oakley Capital Funds IV, V, VI, Oakley Capital Origin and Oakley Capital Origin II to Carlyle Alpinvest, another private equity fund, has been agreed at £257m (€295m).
Although that’s 5.75% less than the funds are worth, the transaction supports their latest valuation being at a much narrower discount than the near 30% deficit at which OCI shares trade.
The disposal also strengthens OCI’s balance sheet as it offloads £244m (€281m) of investment commitments to the buyer, reducing the company’s outstanding commitments to £480m while raising cash and liquid assets to £327m.
Commitment cover, which measures the ratio of total liquidity to outstanding commitments, will more than double from 0.21 times to 0.48 times when the transaction completes next month.
Shares in OCI rose 3.3% yesterday as the £902m European buyout fund committed another £20m to share buybacks to address the longstanding share price discount. This doubles intended buybacks for next year to £40m.
Chair Christopher Samuel said the sales underscored the “unwarranted” size of the discount and created “a strong platform for the board’s focus on shareholder returns”.
He added: “It is the first of a number of strategic initiatives we are taking to increase demand for OCI’s shares. The sale, in conjunction with future realisations, provides the opportunity to make further accretive buybacks and extend participation in the performance of future Oakley funds.”
OCI shares, in which activist Asset Value Investors is a 5.9% holder, gained 17.6p to 553.6p as Bloomberg reported that Oakley Capital was in exploratory talks to sell Phenna, the Nottingham-based testing, inspection, certification and compliance (TICC) service provider which it bought in August 2022.
Phenna was OCI’s best performer in the first half of the year, adding 13p per share or £21m to net asset value (NAV), valuing its stake at £163.9m or 12.7% of NAV at 30 June.
A third quarter trading update yesterday showed it was one of 16 OCI holdings that were marked up in the three months to 30 September. It added 7p to NAV per share that rose 1.2%, or 9p, to 791p, which is 237p above the current share price. OCI said 10 holdings were marked down and the remaining 15 were broadly flat.
Our view
Richard Williams, senior analyst at QuotedData, said: “This is a significant development for OCI, providing much-needed independent evidence to support its portfolio valuations, highlighting the disconnect between private market valuations and public market pricing. The transaction also materially improves OCI’s financial flexibility, massively reducing outstanding commitments and providing scope to lower borrowing costs and increase share buybacks (with the board already doubling its planned 2027 buyback programme to £40m). Encouragingly, there could be further substantial realisations on the horizon, with Bloomberg reporting that Oakley is exploring a sale of Phenna Group, one of OCI’s largest and best-performing investments, potentially in 2027. Although discussions are reportedly at an early stage, a successful disposal could provide another important test of portfolio valuations and release additional capital. Taken together, these developments should help address investor scepticism surrounding OCI’s valuations, although translating this into a sustained narrowing of the share price discount remains the challenge.”
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