Polar Capital Holdings plc is an AIM-listed fund management group, specialising in active management, with £22.8bn of assets under management (AUM). The group is a notable performer on a multitude of metrics – including investment performance, AUM inflows, revenue generation, operating profits, and dividends – yet its share price trades at a significant discount to our fundamental valuation of 1,305p and its PE ratio of 12.7 is substantially below the sector median of 33.5. We see sound reasons for a significant change in rating.
The business is structured as a multi-boutique, with specialist investment teams managing thematic, sector, geographic, or financial-instrument-specific portfolios. Teams are structured as semi-autonomous business units, are heavily incentivised around their investment performance (aligning their interests with clients), and mostly left alone to run these portfolios. ‘Centralised’ operations support teams, providing infrastructure and marketing, distribution, and client services functions.
While revenue and profitability are exposed to slightly more volatility than most peers (due to the significance of perf. fees), and Polar has heavy exposure to the technology sector (49% of AUM, up from 28% in FY18, because of strong returns and inflows), we do not think this justifies its lowly rating given the powerful investment case. 1305p / share is our calculation of fair value.