Polar Capital Holdings Plc (POLR) Ord 2.5p
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HL comment (11 January 2024)
Polar Capital's assets under management (AUM) grew by 2% to £19.6bn over the first 9 months of the financial year.
Net redemptions of £1.7bn were more than offset by positive investment performance, linked to a rally in major equity markets in the last quarter of 2023.
Performance fees in the period grew from £1.9m to £9.6m.
The shares fell by 3.0% following the announcement.
Our view
In the third quarter of the financial year, Polar Capital has seen outflows from its funds nearly double compared to the levels seen in the first half.
That's been offset somewhat by a strong performance of its funds and isn't too much of a surprise, given a good run for all major indices.
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%, at the last check 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 10.1% 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.
The Share Research team is ceasing covering of Severn Trent. This is the last update and house view HL will produce on this stock. You can still find out more about our thoughts on the Financials industry by signing up to our Share Insight email.
Polar Capital key facts
Forward price/earnings ratio (next 12 months): 12.7
Ten year average forward price/earnings ratio: 13.1
Prospective dividend yield (next 12 months): 10.1%
Ten year average prospective dividend yield): 7.0%
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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