@SimonGrFYI, the way I’m looking at the modelling of Fund 1 is...

@SimonGr

FYI, the way I’m looking at the modelling of Fund 1 is roughly as follows:

a) Look at the schedule of Possible Completion EPV (from “Investment Portfolio at 31 December 2020”, ASX ann. made on 29 Jan 2021). The expected EPV realisations per financial year (in A$) look as follows:

FY2021: 67.7m$

FY2022: 1,756.7m$

FY2023: 291.7m$

FY2024+: 268.2m$

Total: 2,384m$

b) Make an assumption for the EPV/Revenue conversion rate; using the historical 18% average conversion, the amount above corresponds to 2,384m$*18% = 429.2m$ expected cumulative revenue for the fund.

c) Look at the capital already deployed through the fund; on page 5 of the same announcement it shows up as 150.4mUS$ (197.6mA$ at today’s FX rate), with an extra 14.5mUS$ (19.1mA$) of capital committed but yet to be deployed.

d) From the above, we can conclude that the expected ROIC for Fund 1 (assuming the average historical EPV/Revenue conversion rate) is 429.2m$/(197.6m$+19.1m$)-1 = 98% (hence lower than the 130% historical average, unless EPV/Revenue for this fund also ends up being below average).

e) To work out the portion of expected revenue earned by OBL under the fund structure, the formula I am using is 85%*[429.2m$-(197.6m$+19.1m$)-75%*(197.6m$+19.1m$)*(15%+2%)*3]+25%*(197.6m$+19.1m$)+75%*(197.6m$+19.1m$)*2%*3 = 174.1m$, where

85% = OBL participation after investor payout

75% = investor equity contribution

15% = investor preferred return (pa)

2% = OBL management fee (pa)

3 = expected # years until completion

25% = OBL equity contribution

f) The expected future Gross Profit for OBL is then simply the difference between the revenue amount just calculated and the portion of capital yet to be deployed contributed by OBL, i.e. 174.1m$-19.1m$*25% = 169.3m$.

Regarding the cost of funding under the “second-generation” structure utilised under funds 4 and 5, you’re absolutely right: it is a lot more competitive, in terms of expected future cost of funding, in comparison with Fund 1 (described above) and also with Funds 2 and 3.

On the flip side, it can be argued that such second-generation structure does not give OBL as much upside, in the event of a very high ROIC, as Funds 1, 2 and 3 would; having said that, it certainly is not as onerous for OBL from both a cash-flow and a ROIC break-even perspective.

Nonetheless, modelling steady-state future EBIT using Funds 4 and 5 as “front-end” economics still projects a future earnings profile that looks pretty solid (see my previous two posts) relative to today’s price.

Cheers