Polar Capital Holdings (POLR)
AUM jumped £2.3bn (+12%) over Q4 of FY24 to £21.9bn on 31 Mar 24, which is 12% above our previous forecast of £19.5bn, and +14% y-o-y growth (AUM 31 Mar 23: £19.2bn). In turn, our FY24 revenue forecast increases from £188.4m to £191.6m (+5% y-o-y, FY23: £182.9m); PBT from £50.1m to £52.1m (+15% y-o-y, FY23: £45.2m); and basic EPS from 38.3p to 39.8p (+8% yo-y, FY23: 36.8p). The EPS revision translates to a forward PE of just 11.5x.
Investment performance was the AUM booster in Q4, adding +£2.3bn or +12%. Primary drivers were exceptional (mostly above benchmark over 3m & 12m) investment returns in Polar’s largest strategies of technology (c38% of AUM), healthcare (c20%) and insurance (c11%) – see page 2.
Probably most pleasing though, was a return to positive, albeit modest, net flows in the quarter of +£56m. Moreover, Polar reported strong net flows in March (+£228m) with net inflows from the Global Absolute Return, Emerging Market Stars, Asian Stars, Biotechnology, Global Insurance, Japan Value, Global Technology, AI and UK Value funds. There are also signs of an improving outlook for UK and European equity and active management fund flows more generally (pages 3 & 4).
The improvement in Polar’s net flows is unsurprising to us, as it has been clear for some time that many investors’ decisions to keep reducing technology (and other equity) exposures following the valuation falls of 2022 have proved costly and resulted in them missing out on exceptional returns (page 3). We think Polar’s investment track record will attract significant inflows over the longer term.
Polar has also announced that a new US-based International Small and Mid-Cap Equities investment team will be joining the business in Sept 24 to complement its existing US offering. The highly experienced Dan Boston will lead the team. He moves from Brown Capital Management in Baltimore, Maryland where his team was responsible for managing U$3.5bn of assets.
Fundamental value increases to 650p per share
Our fundamental valuation increases to 650p per share (42% above the current share price), supported by our view that both Polar’s PER (12.4) and that of the sector (13.8) have the potential for a re-rating (page 6). We also observe a steady increase in trading volumes of POLR shares over the last six months or so, a sure sign of increasing investor interest (page 6).
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