In FY23 (to 31 Mar 23), market conditions created strong headwinds for asset managers, especially those with a growth equities bias like Polar. AUM declined 13% from £22.1bn to £19.2bn, with net outflows of - £1.6bn (FY22: + £0.4bn), investment performance of - £0.9bn (FY22: +£0.9bn); and fund closures of - £0.5bn. However, the story of the year was certainly not entirely negative, but mixed, with an improving picture towards year-end and also post-year-end (although we caution that economic and market conditions remain uncertain).
The strength of FY22, buoyed by the bull market of calender-2021, makes FY23 results look comparatively weak. Gross income fell 18% from £226m to £186m. However, performance-tilted variable pay structures resulted in operating costs reducing by 16% from £141m to £119m, which limited margin impact. So, while core operating profit fell 31% y-o-y from £69m to £45m, core margin fell from 37% to 31%. Statutory PBT fell from £62m to £48m, and PBT margin fell from 28% to 24%.
Polar maintains a strong balance sheet, with cash of £107m (down from £121m), and no debt. This strength has given the board confidence to maintain a full-year dividend of 46p, a yield of 9.3%.
We forecast AUM growth in FY24 based on an improving outlook, although revenues are expected to fall in FY24 (lower ave. AUM), before recovering in FY25. Our fundamental value is 625p per share, 26% above the share price, and we see potential for a company and sector re-rating.
