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Polar Capital Holdings - dividend held firm as outflows continue

Derren Nathan | 20 November 2023 | A A A

No recommendation

No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Polar Capital Holdings Plc Ord 2.5p

Sell: 460.00 | Buy: 462.50 | Change 3.50 (0.76%)
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Polar Capital's average assets under management (AuM) fell by 3.0% over the first half of the year to £19.4bn. Improving fund performance was not enough to offset net outflows of £0.6bn over the period.

The lower asset base and reduced average management charge meant that fee income was down 4.4% to £76.5mn.

The reduction in revenue drove a fall in operating profit from £25.8mn to £22.5mn. Free cash flow fell from £9.5mn to £2.7mn largely reflecting an increase in tax payments. Polar ended the period with net cash of £72.8mn down from £107.0mn excluding lease liabilities.

Polar commented that investors had adopted a 'risk off' stance during a challenging period. Looking to the long term, the Group remains confident that its differentiated range of sectors and strategies leave it well-placed to perform.

The interim dividend was unchanged at 14p per share.

The shares were up 1.7% following the announcement.

View the latest Polar Capital share price and how to deal

Our view

Outflows from funds managed by Polar Capital have been declining, but they're still a major concern. That's been offset somewhat by a strong performance of its funds and isn't too much of a surprise, given a good run in the technology sector, the group's largest specialism.

Whilst investment performance can wax and wane, retaining and attracting new money is key to the business's long-term health.

Recent performance by Polar's investment teams has been impressive, but it remains to be seen if and when Polar can drive enough institutional investors in its direction to return to net inflows.

Despite this challenge, Polar Capital has remained profitable and cash positive at an operational level. The Group isn't standing still and has been diversifying into sustainability-focused funds as well as emerging markets mandates, which have been gaining momentum. However, at under 10% these are still a small part of AuM.

We do think that Polar offers something a bit different from the more generic fund managers. That's resulted in some impressive plaudits from across the industry. It's not impossible that its specialist investment teams could attract the eye of a bigger player. The difficult market backdrop has seen an uptick in consolidation in the market. But there's no assurance that any bidders will emerge for Polar. And for now, a muted risk appetite amongst investors could put pressure on some of the growth sectors favoured by Polar. Investment managers with a wider spread of strategies may be better placed to retain or win new business.

The Group's prospective dividend yield of 10.2% is of note. However, that's currently being largely funded by Polar's existing cash pile. We don't have any immediate concerns about the balance sheet, but if earnings don't recover, there is risk that the dividend is cut or scrapped. As ever, dividends are by no means guaranteed and yields are not a reliable indicator of future income.

Despite the continued pressure on demand for Polar's funds, the price-earnings ratio remains close to the long-term average for now. If AuM remains under pressure, then we see little reason for investor sentiment to improve.

Polar Capital key facts

  • Forward price/earnings ratio (next 12 months): 13.0
  • Ten year average forward price/earnings ratio: 13.1
  • Prospective dividend yield (next 12 months): 10.2%
  • Ten year average prospective dividend yield: 6.9%

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

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This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.