Polar Capital Share Discussion Threads

[masurenguy] 02/2/2023 15:46

Polar Capital EM Stars looks to EV bounce to get back on track

After a ‘very hard’ 2022, Jorry Rask Nøddekær is backing Chinese tech to keep rebounding and thinks valuations look compelling in the ‘green metals’ space.

After veering off course last year, Citywire + rated Jorry Rask Nøddekær is turning to both old favourites and newer areas to get returns for his Polar Capital Emerging Market Stars fund back on track. The £973m strategy endured its first significantly challenging run last year as growth stocks and Chinese equities struggled. The portfolio, co-managed with A-rated Naomi Waistell, fell 19% in sterling terms, versus the MSCI Emerging Markets index’s milder 10% drop. ‘I’d definitely be very frank and say that 2022 [was] a very hard year for us,’ said Nøddekær, noting it had been the worst period of underperformance in 12 years running the strategy.

However, since launching in June 2018 after Nøddekær joined the boutique from Scandinavian giant Nordea, the Polar Capital fund still remains ahead of the market, with an 18.8% return versus 9.6% for the benchmark – a record that has led the manager to be identified as an elite stockpicker by Citywire Fix the Future. Now, Nøddekær and Waistell are eyeing the potential for some of the Chinese e-commerce and tech names that had dragged down the fund to continue a recent rebound. They are also sticking by a bet on ‘green metals’ and the wider electric vehicle (EV) supply chain, where stocks have had more mixed fortunes.

The pair had made relatively early and big bets on EV battery makers, including Samsung SDI. The Korean company was still a 2.2% holding at the end of December, according to Morningstar data. During 2020, they increased their interest in more ‘upstream’ component markers, such as specialist anode and cathode makers. They also had a constructive view on metals including copper, lithium, nickel and cobalt, for which demand should be boosted by the energy transition. More to the point, they felt supply would remain tight due to ‘quite significant underinvesting’ in that area.

While the sector is not a natural fit for the quality- and growth-focused fund, Nøddekær and Waistell have long maintained a foothold in Ivanhoe Mines, Canada-listed but with its key copper mine in the Congo. ‘For us, the real inflection point came on the back of the Russian invasion of Ukraine,’ said Nøddekær. They felt stocks leveraged to the growth of green energy would be the natural market winners, as governments’ eagerness for more energy security and generation sources within their own borders added to the environmental case.

Mining-exposed names, in particular, also showed weakness, which led to a series of trades last April and May. The team bought Allkem for the emerging markets portfolio, where it is now a 1.4% position, and the smaller Asian Stars fund. Though Australia-listed, its main assets are in Argentina, and the pair expect it to be one of the fastest-growing lithium companies. Lithium miner Ganfeng, a 1.6% weighting today, was a similar buy within China. While China dominates the processing of rare earth materials and battery materials currently, the Polar Capital team is eyeing the potential for a shift amid similar trade tensions with the US over semiconductors. ‘There is a large chance you will have two supply chains,’ said Nøddekær. ‘There’s definitely a risk that you will get a more Western world supply chain, and there’s no question that Allkem plays very well into Japan-US from that supply side,’ he said.

Lynas Rare Earths – dubbed ‘the only really global player outside China’ – was a further buy. It has assets in Australia but manufacturing and refining operations in Malaysia. Korea’s Daejoo Electronic Materials, with exposure to specialist anode components, was a summer purchase on a similar view that it could benefit from US manufacturing plans.

On Chinese e-commerce and tech giants, the manager is confident that a recent rebound is laying the bedrock for strong performance over the next few years. While Tencent has halved from its 2020 peak and Alibaba has done even worse, the Hang Seng Tech index has rallied 67% since the start of November as Beijing has dropped its zero-Covid policy and looked to focus on growth again. Nøddekær and Waistell trimmed holdings including Alibaba, JD.com and Tencent in late 2020, primarily on valuation grounds after their massive run-up that year. ‘It was not because we could forecast the panic around regulation in any meaningful way,’ he said.

The team’s structural view on Chinese internet regulation is that it has been ‘almost like a copycat of EU GPDR and privacy rules’ and a relatively mild development before myriad other concerns were lumped in. Coming out the other side, they expect the ‘winners’ to have slower revenue growth but stronger profit margins as competition falls away in a tougher regulatory environment. For the e-commerce names, that reduces the threat of a new disruptor coming in, like Pinduoduo. ‘Looking at the last few quarters’ results and seeing how these companies… have been able to manage their margins well in this environment and still been able to position well strategically, it makes us pretty comfortable that for the next couple of years there is a really good earnings return story baked into these companies,’ said Nøddekær. Towards the end of last year, the managers began increasing exposure, allowing them to ‘regain some pretty good performance in the China space lately’. Ending last year, Tencent was a 7.5% position and Alibaba a 4.4% position, while they also have a significant 3.4% weighting in food delivery incumbent Meituan.

[danb45] 18/1/2023 21:30

will add on further weakness

[riverman77] 17/1/2023 16:18

I think the dividend is very safe even if earnings temporarily dip as they have so much cash on hand (they said as much in a recent presentation).

[melton john] 17/1/2023 15:47

Also depends on your timescale. Longer term the broker consensus on Stocko is the 46p divi is safely covered from earnings and reserves giving a yield of 8.6% for 23,24 at the current price. With possible falling inflation and interest rate this a major factor possibly adding to buying pressure.

A shorter timescale then potential downside v upside becomes important.

Sell now and miss out on possible upside and future divi or buy/hold with a possible dip in price.

Stocko consensus of 5 brokers is a buy with net profit for 23 of 38.80m and eps 38.7p

[riverman77] 17/1/2023 14:25

Yes perhaps 7.5x on last year's earnings when adjusted for cash. However we know AUM is now lower, performance fees will also be lower and costs a bit higher too since they've added new teams - so as it stands earnings will be a good deal lower than last year. Obviously everyone will have their own view on where markets and AUM goes from here, so EPS could well recover. A lot depends on how tech does, which makes up around third of AUM.

[melton john] 17/1/2023 13:54

I meant argument not as an angry quarrel but a series of statements to support a point of view.
Thanks for the reply, I think it's a difference on whether historical or forward looking. I think the Peel Hunt view is based on last years earnings and his point is the bad news is in the price and the AUM will grow.
At year end they had £183M of cash which gives them a enterprise value of £367M. Divide this by net profit of £48.9M = 7.5.
Figures from Stockopedia.

[rcturner2] 17/1/2023 13:38

I have sold out today after a good run. EPS could well be 30p next time so the current rating is starting to look a bit high for me.

[riverman77] 17/1/2023 11:55

It's not an argument, I am just stating that the PE of 7.5x referenced in the previous post does not like right (in fact is clearly wrong) - the equity development note has forecast earnings of around 13-14x. AUM has fallen so EPS will also fall (unless of course AUM grows again, but as it stands EPS will be lower).

[melton john] 17/1/2023 09:56

That's a very persuasive argument riverman. Anything to add?

[riverman77] 16/1/2023 19:38

7.5x earnings? Don't think that's right.

[masurenguy] 16/1/2023 08:00

Polar Capital progress despite outflows, says Peel Hunt

Outflows at fund manager Polar Capital (POLR) have slowed and although they remain a headwind, they mask the group’s strategic progress, says Peel Hunt. Analyst Stuart Duncan retained his ‘buy’ recommendation and target price of 610p on the stock, which last week rallied 10% to 517p. The group reported a fourth-quarter 2022 update that showed net flows remained negative, albeit at a reduced level compared to preceding quarters. Overall, assets under management were down 1.6% over the three months to £18.5bn due to market movements and weakening investor sentiment. "Markets and outflows remain a headwind for Polar, masking the strategic progress made. The challenges are, we believe, more than reflected in a valuation of just 7.5x earnings. A yield of 9.5% looks exceptionally attractive." said Duncan.

[danb45] 13/1/2023 10:38

someone's still marking down every comment - obvs still underwater eeek - think they're on the DLG board too - cheer up mate it's only money :-)

[diviincomesearch] 12/1/2023 12:07

Yes P/E should be well off from last year. No real performance fees to speak of apart from the Global Insurance fund which has performed well. Performance fee profit was only about 4mn last full year.

Impairments for Phaeacian were booked last year, aside from some ongoing legal fees I’d imagine

I adjust P/E for cash which there is typically £100mn lying about for at the low end. So expected PE stripping out the cash is single figures, assuming no recovery in AuM.

[riverman77] 12/1/2023 10:31

The 9.8 PE is based on last year's profits when AUM was higher - EPS is set to fall based on current AUM. Obviously markets (and therfore AUM) could go either way from here, but I think you have to be prudent and base the valuation off the current AUM. This would put POLR on 13/14 multiple which seems about right.

[edmonda] 12/1/2023 07:44

Our latest research following this morning's update (full link here:

AUM fell 1.6% over Q3 of FY23 (to 31 Dec 22) to £18.47bn. Over the first nine months of the FY the AUM fall totalled 16%, although this was heavily impacted by the significant sell off in technology stocks in Q1 (Apr – Jun 22). Net outflows totalled £304m during the quarter, lower than the £529m recorded in Q2 and the £316m of Q1. Market movements and investment performance contributed +£19m over the quarter (Q2: +£342m; Q1: -£2,393m). The closure of Phaeacian mutual funds in Q1 resulted in a -£469 impact on AUM.

The lower net outflows of the latest quarter and two consecutive quarters of positive investment performance suggests a degree of positivity in some of the major sectors Polar is exposed to, and perhaps some stability in the most significant technology sector. More specifically, Polar has reported:
• continued demand and inflows into the Global Insurance, Healthcare Blue Chip, Smart Energy and Emerging Market Stars funds, with combined net inflows of £190m in the quarter;
• a continuing decline in the rate of outflows from its open-ended Technology funds, with £217m of outflows in Q3 compared to £252m in Q2 and £380m in Q1.

This latest AUM update suggests Polar is on track to meet our previous FY23 forecasts, which remain unchanged (we will revisit forecasts & valuation with the Q4 AUM update in April), as does our fundamental valuation of 600p per share (20% above the closing 11 Jan 2023 share price). We also highlight that Polar’s PER of 9.8 is significantly below the 12.2 median PER of a UK-listed active fund manager peer group.

[masurenguy] 12/1/2023 07:18

AuM Update

Polar Capital reports that as at 31 December 2022 its AuM were £18.5bn compared to £22.1bn at the end of March 2022, a decrease of 16% over the period. During the nine-month period, AuM decreased by net redemptions of £1.1bn, outflows from fund closures of £0.5bn and a GBP2bn decrease related to market movement and fund performance.

Gavin Rochussen, Chief Executive, commented: " There has been continued demand and inflows into the Global Insurance, Healthcare Blue Chip, Smart Energy and Emerging Market Stars funds, with combined net inflows of £190m across these funds in the quarter. A combination of the continued risk off market sentiment leading into the end of the calendar year, net outflows, fund closures and fund performance meant that our AuM at the end of the nine-month period were £18.5bn compared to £18.8bn at the end of the previous quarter and £22.1bn at the end of March 2022. Total net outflows for the quarter were £304m.

During the quarter, the rate of outflows from the open-ended Technology funds continued to decline, with £217m of outflows compared to £252m in the previous quarter and £380m in the first quarter of this financial year. While crystallised net performance fee profits for the period to 31 December 2022 were muted this year, long term performance remains strong with 64% of our Funds and 78% of AuM having outperformed their respective benchmarks since inception. We remain confident that with our diverse range of differentiated, active specialist fund strategies we are well-positioned to perform for our clients and shareholders over the long term."

[topvest] 10/12/2022 14:33

Yes, agreed. I am very positive long-term but may have another drop to come before it takes off again.

[rcturner2] 07/12/2022 06:58

I do subscribe to Stocko, I find it very useful. I have a decent stake here, this is my biggest holding currently. I think at 500p it is fair value to a large extent. It is a decent well run business, but I suspect that it is in a bit of a "pause" at the moment, waiting for a future rally in equities.

[brucie5] 06/12/2022 22:17

Ah, RCT - well met again. I take it you're not impressed by Mark Simpson's analysis? Or do you not subscribe to Stocko?

[rcturner2] 06/12/2022 21:02

Well the dividend is uncovered. If you take eps at 40p and have a range of PE from 10 to 15 then current 494p is pretty much midway between them.

[brucie5] 06/12/2022 15:29

Depending on whether you look at the smas or wmas, this is either being held down, or has just been let loose! I tend to favour the latter, which probably shows confirmation bias as a I have just added. But the dividend alone makes it highly attractive, while receiving a 98/100 for quality on Stocko. Also featured on Mark Simpson's recent list of Buffet-esque 'wonderful companies' - on several of his screens. Al this while yielding >9%. What are we missing?

hxxps://app.stockopedia.com/content/using-buffetts-principles-to-narrow-the-field-of-wonderful-companies-958113?order=createdAt&sort=desc&mode=threaded

Three companies feature on five of the Top 20 lists: Polar Capital Holdings (LON:POLR) Best Of The Best (LON:BOTB) and M Winkworth (LON:WINK)

[edmonda] 27/11/2022 14:51

Investor Presentation video - November 2022 (Interim Results)

Polar Capital Holdings plc (AIM: POLR), the specialist active asset management group, conducted a presentation covering its Interim Results for the six months ended 30 September 2022.

Gavin Rochussen (Chief Executive Officer) and Samir Ayub (Finance Director) ran investors through the key highlights of the period, a detailed financial review, and provided an update on fund performance as well as AuM & Fund Flows. The management team also answered investor questions.

If you missed the live event, you can watch the full presentation replay, which has been divided into chapters for ease of viewing:
0:00:03 Overview & Highlights
0:01:14 Market Perspective
0:03:05 Fund Performance & Capacity
0:07:53 AuM & Fund Flows
0:12:21 Financial Review
0:23:07 Strategy & Outlook
0:29:00 Questions & Answers

Link to video:

[patient fox] 25/11/2022 16:26

Polar results presentation now on YouTube.the board now starting to look at buying fixed interest bonds.