Oakley Capital Investments reassures investors of resilience of its consumer-focused, private equity investments after plunging price of listings magazine publisher Time Out weighs heavily on its shares.
Oakley Capital Investments (OCI ) has sought to reassure investors of the resilience of its consumer-focused, private equity investments after the plunging price of listings magazine publisher Time Out (TMO), its only quoted holding, weighed heavily on its shares.
Even after an 11% rally this week, OCI has tumbled 36% to 173p at yesterday’s close in the month-long coronavirus stock market panic. This has left the shares standing 49% below their net asset value (NAV), an extremely wide discount that gives the £675m portfolio a market value of £343m.
The discount reflects investor concern that the NAV will fall as private equity valuations respond to the steep decline in asset prices since mid-February.
In a trading update in response to the spread of Covid-19, OCI confirmed there would be ‘an adverse effect’ on the NAV of 345p per share at the end of December.
‘The scale of the impact is dependent on many factors including the duration and severity of the virus, as well as the response from governments and consumers,’ it said.
However, it reiterated its strong financial position with no leverage - or borrowing - and £152m of cash equal to 78p per share and 22% of the end-of-year NAV.
Peter Dubens, founder and managing partner of Oakley Capital Group, whose private equity funds OCI invests in, has previously described its investments as ‘unusual’ consumer plays. They include gift voucher platform Seven Miles and high-end Italian homeware brand Alessi, as well as digital and education businesses.
In the update, the Oakley Capital managers said ‘70% of the portfolio companies operate a subscription-based or recurring revenue business model and are therefore less vulnerable to temporary declines in customer demand’.
‘In addition, 65% of the portfolio either deliver products or services digitally or have the ability to shift to digital delivery in a short time frame.’
‘Oakley Capital has increasingly focused on investing in companies that provide software solutions and digital infrastructure services and that utilise online delivery platforms,’ the managers added.
‘These types of business models are potentially less susceptible to disruptions caused by the pandemic compared with the broader economy,’ they said.
So far a digital move has not helped Time Out, which was the third largest weighting in the portfolio at 11% at the end of last year, which has lost 69% of its value in the global sell-off and now makes up 7.3% of the portfolio.
Time Out Markets, its burgeoning food court format that it has opened in six cities around the world, has been disrupted by the lockdown on restaurants caused by the virus pandemic. The publishing arm of the group is also expected to take a hit from a slowdown in advertising.
The performance of the shares is in stark contrast to last year when they rose 73% and helped propel OCI to become one of the best performing closed-ended funds in 2019 with an impressive total return of 56% for shareholders.
There has been one benefit of share price weakness as OCI, under the watchful eye of activist shareholder Asset Value Investors, has bought back three million shares with further share buybacks expected.