Oakley Capital ditches dividend in favour of regular share buybacks
Oakley Capital Investments (OCI ) has scrapped its ‘nominal’ dividend in favour of using spare cash to buy back its ‘grossly undervalued’ shares.
OCI, sometimes seen as a shop window for its manager, European private equity investor Oakley Capital, has announced an ‘annual recurring share buyback programme of a minimum of £20m’.
The hefty 32.8% discount has prompted the London-listed investment company to invest in its own shares, calling them ‘grossly undervalued’ in an announcement today. The buyback reflects ‘the board’s confidence in the net asset value (NAV)’ of the fund, which sits at nearly £1.2bn versus its £803m market cap.
OCI has a long history of buybacks, with £72m of shares bought and cancelled since 2019, although the last buyback was in 2022.
The recurring buyback programme will take the place of a regular dividend, which has been cancelled. OCI said the ‘nominal level’ of the dividend has been unchanged since it was introduced in 2016 and that the fund ‘does not generate sufficient income to support one’, given its growth focus.
The cancellation of the dividend, offering a current 1% yield, in favour of share buybacks will take effect this year and will not affect the declared final dividend for the year ended 31 December 2024.
Deutsche Numis analyst Gavin Trodd it was positive to see capital allocated to buybacks ‘particularly given the 33% discount and solid balance sheet’, while the decision to make the buybacks recurring ‘highlights the confidence in future cash flows from realisations’.
The buybacks have to be balanced against future commitments and OCI has also announced a €500m (£420m) commitment to Oakley Capital VI, which has just closed at its ‘hard cap’ of €4.5bn in an oversubscribed fundraising.
Trodd said Oakley Capital’s latest fund was ‘impressively’ oversubscribed in just three months, which is testament to the firm’s ‘growing reputation and differentiated focus’.
OCI’s €500m will be deployed over five years, with the first significant drawdown likely to be in 2026, as the VI fund follows the same strategy of investing in mid-market, founder-led European businesses.
Trodd said OCI is at the top end of commitments as a proportion of assets, at around 88% of net assets.
‘We believe this is manageable given a positive outlook for realisations and that it is consistent with levels at the point of commitment to previous vintages,’ he said.
‘In our view, buybacks, alongside the potential for a main market listing should help to narrow the discount, which we believe is unjustified.’
The commitment of €500m is smaller than the €800m made to Oakley V but Jefferies analyst Matthew Hose said it ‘makes sense in light of the increased focus on capital allocation, together with the challenging exit environment’.
Stripping out private equity giant 3i (III ), OCI is the top performing fund over three years in the director private equity sector, as tracked by Deutsche Numis, growing its NAV 31.9%. That is just ahead of the 31.5% delivered by the MSCI World index. The shares were up 16.9% over the same period, making them the second highest riser.
Over the past year, the fund has faltered somewhat as private equity transactions fell across the board, resulting in a NAV return of just 2.3% and a share price increase of 2.4%.
