Daily Stock Market Report (Mon 30 June 2025) - POLR, MSI, SQZ, BPM, SMWH, PRSR, PRV, ADVT, TTG

Good morning! I'm refreshed after taking a long weekend - thanks to Roland for writing Friday's report. Let's see what we've got today!

Results deadline day: this is the last day on which AIM companies can publish their full-year results for 2024 (if December is their year-end).

Also, for any companies that use March as their year-end, this is the last day on which they can publish their interim results. From the AIM rules:

All such reports (GN: half-yearly reports) must be notified without delay and in any event not later than three months after the end of the relevant period.

So this is the day for stragglers to get their results in, if they don't want to get suspended!

All finished for today, thanks.

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Spreadsheet accompanying this report: link.

The Agenda is complete.

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Companies Reporting

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Graham's Section

Polar Capital Holdings (LON:POLR)

Up 3% to 473.9p (£481m) - Graham - AMBER/GREEN

In a very difficult year for fund managers, these results stand out:

• Closing AUM down only 2% to £21.4bn, while average AUM during the year rose 17% to £22.9bn.

• Core operating profit +27% to ££56.7m. This is ahead of forecast at Equity Development (£53.9m), due to higher revenue margin and lower operating costs.

• Including a £13.6m impairment charge, actual PBT falls 6% to £51.6m, behind forecasts due to the impairment.

Total dividend for the year unchanged at 46p. This is covered by adjusted EPS (53.5p) although not covered by actual EPS 36.6p.

CEO change: we learn today that Polar’s eight-year CEO is stepping down soon. Impressively, the company already has a CEO Designate: their Global Head of Distribution, who has been with the company for 20+ years. He will become CEO in September.

Talking about this set of results, the current CEO says:

"Polar Capital delivered a resilient outcome for the financial year despite industry headwinds for active equity managers. Our AuM ended at £21.4bn on 31 March 2025, just 2% lower than the £21.9bn a year prior. This decline was primarily due to negative market movements in the final quarter, as net flows over the year were broadly flat. Total AuM as at 20 June 2025 were £22.6bn with net outflows of £0.6bn from open ended funds and segregated mandates in the period 1 April to 20 June 2025.

“Broadly flat” net flows during such woeful conditions is a fantastic result, in my book.

Looking at the bigger picture, Polar’s strategy is called “growth with diversification” - which does make me a little nervous, as I think it’s important for fund managers to have a niche, and diversification can dilute this. Polar’s reputation in specific sectors - technology and healthcare come to mind - has served it well.

Here is the AUM split by strategy at year end, where I’ve highlighted everything over 10%:

Over the past year, Insurance and Emerging Markets and Asia have both grown, with particularly strong growth from EM and Asia.

In technology, I note that there were nearly £600m of net outflows from the Polar Capital Global Technology Fund, offset by £173m of net inflows into their AI Fund (of course!).

Geography of investors: important to note that Polar is not just serving UK investors. It has big ambitions in the US although this isn’t showing up in the AUM statistics yet. UK investors provide 63% of AUM with the main other contributors being Europe (23%) and Asia (7%).

Performance: three and five-year fund performance can’t be faulted:

At 31 May 2025, 84% of our UCITS fund AuM was in the top two quartiles versus Lipper peer groups over three years with 82% and 100% in the top two quartiles over five years and since inception respectively.

I see that the Technology Fund has underperformed during the year. Polar says that this is due to “two related structural factors, namely equity benchmark concentration, and the underperformance of smaller companies versus broad markets”.

As Polar points out, this is something that affects active managers in general.

Over the last several years, it has been possible to do well by buying Magnificent 7 stocks, or the automated indexes which hold them.

This is a very rough environment for active managers, who are unlikely to have overweight positions in stocks which are already very large components of their benchmark index. Their own fund concentration rules may prevent them from doing so!

A quick google search throws up this chart created by Goldman Sachs:

If or when the largest companies start underperforming, active managers should hopefully start to see their relative performance improve. If it doesn’t, they’ll have little excuse!

Outlook:

Although global economic and political uncertainty continues to weigh on financial markets, we believe that growing return dispersion and a renewed allocator focus on alpha generation will create a more favourable environment for active management. Polar Capital is well positioned to benefit from this shift, underpinned by our differentiated strategies, global distribution capabilities, and scalable operational platform.

“Growing return dispersion and a renewed allocator focus on alpha generation” are references to the factors mentioned above. In other words, attractive returns will be generated from stocks beyond just the mega-caps, and investors will again be interested to try to “beat the market”, i.e. to generate some alpha.

Graham’s view

As this is a watchlist stock for me, I’m glad to see that its share price has recovered strongly, like many others, since the 350p low it reached during the tariff sell-off.

It remains considerably more expensive than other fund manager stocks, but I continue to think that this is justified by its strong reputation and superior performance - definitely in terms of net flows but also I think in terms of overall fund performance.

Buying £1 of POLR stock gets £47 of AUM based on the latest figures. The corresponding figure for other managers is £90+.

In P/E multiple terms, it’s expensive but not that expensive:

The high dividend yield is helping to support a strong ValueRank. The overall ValueRank is 91.

I was AMBER/GREEN on this last time due to a large EPS cut on lower AUM forecasts.

Equity Development have today increased their guidance for FY26 (e.g. they now forecast basic EPS of 38p, previously 33.8p), thanks to recent inflows. But they have also lowered guidance for the following years, as it balances out.

I’m tempted to upgrade this, but on balance I’ll leave it on AMBER/GREEN to reflect the uncertainty around net flows and the high valuation at which this trades versus others in the sector. It’s still one of my favourite fund managers! I wonder how long they can keep paying out 46p in dividends?

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Roland's Section

MS International (LON:MSI)

Down 13% to 1,180p (£187m) - Final Results - Roland - GREEN

I am delighted to report that we have, once again, made excellent progress across all Group companies.

Today’s results from this owner-managed mini conglomerate showcase record profits for the year ended 30 April 2025, but have received a poor reception from the market.

To recap briefly, this unusual group owns a defence business that makes various kinds of military weapons. In addition, it also has separate operations producing fork lift arms, petrol station superstructures and corporate branding signage (mainly for UK petrol stations).

The issue seems to be that MSI’s defence business, which accounts for 70% of sales, is seeing increasingly long revenue recognition cycles. This could impact results for the current year, but management say they remain “very optimistic about the next two full financial years”.

I’ll return to this shortly, but in short I don’t see too much to worry about in today’s results. Let’s take a look.

FY25 results summary

Today’s headline numbers are refreshingly free of adjustments and show strong profit growth for the year to 30 April 2025:

• Revenue up 7.2% to £117.5m

• Operating profit up 26.9% to £18.7m

• Pre-tax profit up 27.6% to £20.1m

• Diluted earnings up 28.9% to 87.0p

I’ve included both operating profit and pre-tax profit above to highlight how MSI’s full-year result was boosted by £1.3m of interest income on the group’s £23.8m net cash position. We’re seeing this more and more at net cash companies – it’s a nice contrast to the growing interest costs incurred by some other firms.

Last year’s increased profit seems to have been driven by operating leverage. Staffing costs were broadly unchanged, allowing most of the increase in gross profit to drop straight down to operating profit.

This was reflected in MSI’s operating margin, which increased from 13.5% to 15.9% last year. That’s very nice to see, as is the increase in return on capital employed to 26.3% (FY24: 22.9%).

Divisional trading

Looking across the group’s operating segments presents more of a mixed picture:

• Defence: operating profit up 36% to £17.7m;

• Forgings (fork arms): operating profit down 50% to £573k

• Petrol Station Superstructures: operating profit down 52% to £974k

• Corporate Branding: operating loss reduced to £565k (FY24 loss of £1.4m)

Defence: management commentary highlights the strong progress in this business. Last year saw record export sales, driven by Naval weapons systems for the United States and the first deliveries of Naval weapons to the German Navy.

Forgings: fork arm sales were depressed in H1 due to overstocking by some manufacturers. Performance improved in H2. The company believes its US manufacturing operation is likely to become a stronger competitive advantage given the risk of tariffs and has the potential to expand into new markets.

Petrol Station Superstructures: this business is described as “the UK and East European market leader”. Trading is said to be strong in the UK:

I am pleased to report that we have reinforced our dominant market position by completing several substantial, complex new fuel and convenience hubs, including provision for electric vehicles, on major UK roads.

However, demand is said to be weaker in Eastern Europe due “inevitably” to the Ukraine war.

Corporate Branding: the UK business (also concentrated on petrol stations) performed well, but this was apparently cancelled out by continued losses in the Netherlands, where a more diverse range of customers are served. This unit has been restructured and is expected to return to profit this year.

Strategic review

Perhaps unsurprisingly, MS International has decided that defence should be the group’s main focus, going forward:

Given the growth of our Defence and Security division, and its medium and long term prospects, we have decided that this should become the Group's primary focus.

The MD of the defence unit has now joined the group’s board.

Chairman Michael Bell says MSI has tested the market’s interest in some of the group’s other operating units, with a view to possible disposals. Considerable interest was received, but the offers were “not at the levels” that would provide an attractive proposition for MSI shareholders.

We are not in a rush to sell these successful businesses as they continue to have considerable potential and make a significant contribution to the Group. I expect to be able to give shareholders more clarity later this year as and when relevant news is available.

Outlook: a weaker year?

MS International doesn’t appear to commission any broker forecasts and no consensus figures are available that I can find.

Shareholders have to make do with somewhat vague outlook commentary from Mr Bell. I think it’s this that has spooked the market today, perhaps along with a round of profit taking after an exceptional run up.

Here’s what the company has to say about the outlook for the year ahead for the core defence business, which I believe is where the issue may lie.

Defence: MSI has recently received a request for purchase from the US Navy for another year’s procurement of the company’s 30mm naval gun.

However, while the medium-term outlook for defence spending is positive, the company expects “government reviews and subsequent delayed decisions” to affect this year’s results.

One reason for this is that even when an order is received and MSI’s factories start work, revenue may not be recognised until certain delivery milestones are reached – potentially in the next financial period.

This kind of lumpiness is not uncommon in defence and other industrial businesses. Unfortunately MSI doesn’t publish the size of its order book, but it does hint at some shrinkage over the last year:

The Group order book at the April year end was marginally lower than the record figure reported last year. This is purely owing to delays in the placing of substantial defence equipment orders as both military requirements and governments have changed.

Delayed orders are of course not guaranteed. I note that inventories have fallen from £37.5m at HY25 to £30.7m at the end of the year. This is a reverse of the pattern seen last year (HY24: £16.9m, FY24: £25.3m), suggesting that order intake may have slowed.

Even so, the year-end inventory position is still higher than it was a year ago. Using an unchanged 34% gross margin suggests this inventory could convert into £46m of gross profit over the year, 15% ahead of the FY25 result of £40.0m.

Roland’s view

Today isn’t the first time that MSI has warned of the risk that long revenue recognition cycles for defence contracts could lead to lumpy revenue. Graham also commented on this issue in December.

For an investor who accepts the narrative of increasing defence spending, then I don’t see this issue as a concern.

Indeed, I’d argue that perhaps some of today’s fall is simply due to profit taking after a very strong run. MSI’s share price is still up eightfold in five years:

Today’s results leave the stock trading on a trailing P/E of 13 with a dividend yield of 2.0%. Adjusting for net cash reduces the P/E of around 11.5x.

In the absence of forecasts, investors are slightly in the dark about the year ahead. But this is a illiquid stock with a broad spread. I’d only really consider holding it as a longer-term investment. And from that perspective, I don’t see too much to worry about. I’m going to leave our positive view unchanged today.