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Polar Capital is an superb business trading at a bargain price
Specialist asset manager Polar Capital (POLR:AIM) is a high quality business which produces stable operating margins and high returns on equity which have averaged 35% over the last five years. These attractions are not reflected in the share price.
In addition the company boasts a conservative balance sheet with £109m of net cash, representing around 25% of the market capitalisation. Based on consensus expectations for next year’s earnings the business is valued at a price-to-earnings ratio (PE) of 14 times.
Its focus on areas like technology and healthcare are a good fit in a post-coronavirus world and we would expect to see some momentum behind the business when it posts its results on 22 June.
The fund management sector has been consolidating fast over the last few years. This has been driven by the need for scale to address increasing compliance and technology costs, with sub-scale players rendered less competitive.
This makes the business potentially attractive to a larger bidder as there are fewer high quality assets like Polar left to buy.
Polar Capital is an ‘investment focused’ manager with around £12bn of assets under management (AUM) as at 31 March 2020. Rather than gather assets the firm aims to deliver differentiated risk adjusted returns over the long term by providing a range of fundamentally driven products to investors.
The business also places emphasis on providing high levels of customer service, independent risk control and compliance supervision. The culture is entrepreneurial and aims to provide a collegiate and transparent environment designed to support and retain talented fund managers and support staff.
Its funds are diversified across specialist mandates which span global technology, North America and healthcare. These three areas represent around two thirds of the total AUM with the £3.5bn Polar Capital Global Technology Fund (B42NVC3) accounting for a good chunk on its own.
The focus on long-term performance appears to be working with 75% of its funds ranked in the top quartile against peers over the last five years and since inception over 90% of its funds are top ranked.
Recently launched strategies are linked to areas like leading emerging markets and Asian companies as well as automation and artificial intelligence.
The company’s diversification strategy extends to bringing in new teams and in February it acquired a group led by Pierre
Py and Greg Herr from Los Angeles-based First Pacific Advisors.
The transaction, expected to complete in the third or fourth quarter, will add $1bn of assets across three pooled vehicles and three institutional accounts. The team will establish a joint venture called Phaeacian Partners, which will have separate branding.