5th Jan '21 by Jack Brumby

30 comments 7310 reads

The Stockopedia Investment Club (SIC) is Stockopedia HQ's own investment club. We pitch stocks to each other and to the site so you can see our (evolving) research process and give your two cents on the Club's decisions.

You can see all the SIC posts here and read Ed's introduction to the Club here. We hope to bring many more pitches in 2021 - but first, let's revisit the final pitch of 2020: Polar Capital Holdings (LON:POLR) .

Polar was pitched on the 18th of November 2020 when its share price was 609p and its StockRank was 97. Since then, shares have appreciated by c14% and the StockRank has come down slightly to 94.

This growing specialist fund manager aims to be a leading global investment management boutique and backs up its ambitions with a track record of top quartile investment performance over multiple time periods.

Supported by a robust, net cash balance sheet and spearheaded by its best-in-class Technology Trust, Polar is growing organically and via the acquisition of talented investment teams.

But the rise of passive funds is driving down sector margins. So is there room for sustained outperformance from the likes of Polar, or has active fund management had its day?

Summary

Bull Points - Modest forecast earnings multiple given history of double digit operating margins, returns on capital, and compound revenue and earnings growth; Strong cash flow generation and healthy net cash balance sheet; scalable, capital-light business model; positive investment track record.

Bear Points - Low-cost passive funds are taking market share and driving down margins; key person risk; vulnerable to stock market or economy downturn; overweight exposure to big tech.

Profile

Polar Capital Holdings (LON:POLR) trades on the AIM Market, in the Financials Sector under Investment Services. A StockRank of 94 is made up of:

A Quality Rank of 90,
A Value Rank of 44, and
A Momentum Rank of 99.

Stockopedia classifies this as an Adventurous Mid Cap High Flyer. It brings high quality growth to the Investment Club portfolio and, as a fund manager, is viewed as a geared play on a stock market recovery.

The group's EMS of 750 means you can expect £4,500 of stock tradable on bid/ask, so liquidity could be an issue for some. It has an average volume of 196,000 shares which…

Unlock with Email

Unlock with Google

Already have an account?
Login here

makandy

5th Jan '21

Jack,

Why the time lapse between the date of Stock Pitch and when it is posted here ?

Thanks

Bouden54

A few reasons why I'd pick POLR over the PCT trust. POLR offer better diversification - 50% in tech, but also good chunks in insurance, healthcare and EM. It's also a great platform which is able to add new fund management teams and increase AUM. Finally, POLR is very cheap (around 12 times earnings) so a way to get exposure to tech at a bargain price.

Regarding the comparison to SMT - PCT is much more conservative and generally avoids all the really frothy stuff, such as Tesla. So, clearly going to lag SMT in this sort of environment, although of the two I'd much rather own PCT going forward.

GloucesterBob

I purchased this after listening to Richard Leonard end of year review on the always excellent piworld, His Polar Review starts around 6:15, but the whole clip is well worth listening to, his other tips are already up since he hightlighted them

https://www.piworld.co.uk/2020...

Dojosan

Polar Capital Holdings (LON:POLR) is one of those shares that has hardly ever retraced in the past 6 months. Can never find a decent dip for an entry point!

The Phoenix

My thoughts why buy the stock rather than the fund/s well huge amount of consolidation going on in this sector so the funds don't have the chance of being bought out at a premium the stock does.

The Insurance fund although it has a bad twelve months due to covid prior to March 20 was a strong performer and is now starting to recover nicely and as Jack says capital light business that can be easily scaled up once the building blocks are in place.

The sheer scale of qe unleashed also will eventually have to end up somewhere in 08/09 it was stocks and bricks and mortar this time round 4-5 times more qe has been unleashed than in 08/09 personally think it will be rinse and repeat with a 5-7 year bull once covid shackles are off.

Regards Andy

jonno

"if you're an investor rather than a trader don't worry about the last few pence, that's my advice. If you're right and it doubles over a couple of years you won't be worried about paying a few pence more."

Never a truer word.

Elric Langton

Interestigly Polar has been adding to its position in Synairgen SNG, announced affyer hours. Comment on SNG

Edward Croft

Yes it was actually Richard Leonard's PIWorld podcast that made me take a closer look and after some consideration I pitched it and buy it personally. Thanks to Jack for writing this up. The forecast 12x PE seemed very moderate to me for an active house that is quite aggressively building long term value. Multiple expansion is 50% of an equity investor's return. The forecasts are very beatable. I have concerns about the heavy exposure to Tech... but I also think the passive/index tech bubble may continue to silly levels. 5% yield is pretty handsome too.

QARPY

Valuation based on FCF is however atrocious. P/FCF 82.5. What has caused the drop in FCF in recent years? and is this not a cause for concern? After all FCF are "real" returns contrary to Earnings.

KevinS1

Totally agree Ed - that pretty much mirrors my intro to it and ongoing feelings. I'll keep a close eye on it as I can see it hitting a level where there might be better growth opportunities, but as you say the divi should not be overlooked.

Chris HM

6th Jan '21

Hi Javaheart - I think you may be confusing the holding company with its funds. There are valid reasons to hold both, but they are different propositions and it’s important to be clear on that.

Ed,

Same question I posted to Jack yesterday and waiting for response, why the time lapse between the date of Stock Pitch and when it is posted here ?

Thanks mate

Mark Penney

Great Synopsis Jack.

As a former financial advisor I would say some active managers will struggle in the future-size is always the killer. However, what works in PC favour is their clever use in monitoring of Fund Manager who use their Platform, this should hopefully provide a rich vain for future talent. However, performance is key and style drift or continued underperformance against sector returns is likely to be punished via removal from clients portfolios.

To counter this: the rise of ETFs ( and now the dissecting of specific areas within an ETF) will continue and the combination of low costs, liquidity and low entry point will be the catalyst for change. Many smaller investors will probably elect, via there advisors/online platform provider to combine ETF and specialist managers, such as the likes of Polar Capital, Slater Growth and Liontrust (example being say Tech play via PC and passive wider Nasdaq tech play via ETF-thus two horses in the same race).

A lot comes down to the management skills within PC and there ability to continue to evolve the business - in my experience that is were the problem lie: being a good fund manager does not necessarily make you a good manager to run the business.

Best regards,
Mark

shanklin100

Hi Jack

I can see POLR have grown revenue and profits when viewed in the longer-term, but in the short-term their performance has been highly cyclical with performance fees presumably varying largely in accordance with how the stockmarket is doing.

So if one buys this in the wrong point of the cycle, I am taking the view that one could be in for an extended period of fairly poor perfromance.

Or do you think management actions to strengthen the business are such that profit can be more reliably grown going forward?

Kind Regards, Martin

P.S. That is not to say it will not a decent six-month or one-year trade (say) from current levels

Javahart

You are correct. I knew that but was thinking about funds at the time of writing, thanks for clarifying.

iggs58

Thanks. I get my diversification through a spread of trusts/funds,though I'm probably too heavy tech. Tbh, I've pretty much stopped picking stocks in the current volatile environment, preferring to, er, trust the better managers than myself. It worked for me in 2020 (up 43% total return, would have been far higher if I'd changed my approach from the start).

I'll obviously have to keep alert to a tech sell off.

@voodoobar

"Same question I posted to Jack yesterday and waiting for response, why the time lapse between the date of Stock Pitch and when it is posted here ?"

Well - this comes down to a few things really:

I pitched POLR to the club, but didn't have time to write it up
Jack & Ben were busy on other priorities. Keelan was away for December.

We're trying to chronicle the club's account, and I'm pushing for the team to write up new pitches ASAP after they've been pitched to the club.

I am currently pushing for us to even de-couple the 'pitch' write-ups from the Investment Club decision making - so that we can increase the volume of pitches, but also the cadence of them - firstly to 1 weekly, then to 2 weekly perhaps.

So we may start publishing pitches before the club votes on them... and essentially use the pitch write-ups on the site as the club consideration content.

We shall see.

I certainly don't want the club to become a "copy trade" vehicle.... but I do appreciate that people are starting to see the Club write-ups as part of the service. That comes with quite a lot of responsibility!

7th Jan '21

Many Thanks for your reply , and look forward the Club write-ups.

Anthony127

Jack thank you for your concise exposition.

I bought Polar Cap Holdings two days before your investment club meeting. I felt I received some confirmation from Richard Leonard in the excellent PI World interview. The publication of this stock pitch is welcome further confirmation. The most important confirmation however has been the rise of 11.5% since purchase and the expected receipt of a substantial dividend tomorrow.

I have always been impressed by the business model of the Asset Management Company. I recently investigated three asset management companies and came to the conclusion that Polar Capital Holdings (LON:POLR) seemed to be the best Value for Money version of the business model that I could find.

The question of passive v active management is very pertinent I feel. One of the attractions of active management is the feeling that Fund Managers should be able to beat the averages. As we know this is often not the case. Considering that Technology is the largest element of Polr's portfolios it is reassuring to note that this week's Investor's Chronicle indicated that Polar Capital Technology Trust (PCT) had beaten the World Technology Index by 36% over the last five year.

ETF's can also sometimes act as a stimulant to Fund Manager portfolios. Purchases of the NASDAQ ETFs help PCT by virtue of the fact that 25% of PCT's holdings consists of Apple, Microsoft and Google.

I expect Technology to continue to do well over the medium to long term but I think the reversion to economic normality will also provide growth opportunities to Polr's portfolio holdings in Healthcare, Emerging Markets and cyclical Value.

Tortoise investor

9th Jan '21

Good write up - thank you. Useful to also see how tech dominated their assets under management are (from their recent half year results):

Stock Pitch - Polar Capital (LON:POLR)

Summary

Profile

Unlock the rest of this article with a 14 day trial

About the Author

Jack Brumby

30 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...