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Polar Capital - profits down but dividend held

Net management fees were down 13.9% to £80m for the half year.

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Net management fees were down 13.9% to £80m for the half year. Polar saw an 11.1% decrease in average AuM (assets under management) to £20.0bn.

Polar finished the period with AuM of £18.8bn, a 15% decrease over 6 months with negative market movements of £2.0bn being the biggest driver. Net redemptions from Polar's funds amounted to £0.8bn with a further £0.5bn of the movement due to fund closures.

Polar reported a strong pipeline of interest in many of its investment strategies.

Underlying operating costs were down 4.2% to £54.2m. The net effect was a 28.9% fall in underlying operating profit to £25.8m.

Cash flow from operations was £10.4m down from £27m reflecting not only lower profit levels, but also a deterioration in cash conversion.

Net cash was down to £82.4m from £121.1m.

The interim dividend was held steady at 14.0p per share.

The shares were down 1.0% following the announcement.

View the latest Polar Capital share price and how to deal

Our View

Unfortunately, Polar Capital's bottom line continued to shrink in the first half. As an asset management company, Polar's fortunes tend to wax and wane alongside the market, so further pressure on profits was to be expected. The group has particular expertise in Technology and Healthcare, which account for 37% and 20% of assets under management (AuM) respectively.

That served it well up until this year when the tech sector came under serious pressure because of rising interest rates and a weakening economy. The downturn hit performance fee profits, or those the group earns by outperforming benchmarks. And lower AuM levels have led to a fall in non-performance related fees.

Polar also invests some of its capital in its own funds, which offers additional income. This is currently in negative territory.

Despite the challenges noted, Polar Capital has so far managed to remain profitable and cash positive at an operational level. Whether it can return to growth or not depends on market movements and the over or under performance of Polar's funds. Polar also needs to stem the flow of departing clients and bring new money through the door.

The Group isn't standing still and has been diversifying into sustainability focussed funds which have been both outperforming their benchmarks and attracting inflows. However, at £1.1bn it's still a small part of AuM.

The group claims ''at some point, as inflation stabilises and interest rates peak, investors will require increased market exposure''. Polar also feels ''well placed to benefit from this demand.'' We do think that Polar has a unique offering but given the pressure investors are currently feeling, it may be more -mainstream asset managers that benefit, rather than specialist managers like Polar.

Polar Capital is reviewing a number of new potential fund launches and reports a good pipeline of interest in its current strategies. Potential is very different to hardened proof though.

The group's prospective dividend yield of 9.7is of note. However, market forecasts suggest the dividend isn't covered by cash flows. If earnings don't recover then the risk that the dividend is cut or scrapped increases. As ever dividends are by no means guaranteed.

Earnings estimates for the current financial year have come down dramatically over 2022, yet the price earnings ratio remains close to the long-term average. If AuM remains under pressure, then there is little reason for investor sentiment to improve.

Polar Capital key facts

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.

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 disclosure for more information.

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Written by
Derren Nathan
Derren Nathan
Head of Equity Research

Derren leads our Equity Research team with more than 15 years of experience in his field. Thriving in a passionate environment, Derren finds motivation in intellectual challenges and exploring diverse ideas within his writing.

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Article history
Published: 21st November 2022