Polar Capital’s profits melt on outflows

Polar Capital (POLR) had flagged much of the bad news over its fund outflows in its April trading update, which is why the market’s reaction to an average 14 per cent decline in assets under management (AUM) was reflective, rather than hysterical. In fact, investors seemed to take some comfort from the news that parts of the fund manager’s investment performance had improved.

It was noticeable that investors used the opportunity to chase higher interest rates, which meant net redemptions hit £1.5bn. Fund closures took £0.5bn off AUM, with the general market decline and poor investment performance explaining the rest of the £2.9bn annual reduction in assets. Lower average AUM also meant a 17 per cent decrease in management fees, with a magnified knock-on effect for pre-tax profits.

There was evidence of recovery in certain parts of the business, however. Polar’s healthcare funds saw neutral redemptions, with £223mn of subscriptions broadly matched by redemptions in other areas. Better sentiment for UK companies saw funds flowing into the Polar Capital UK Value Opportunities Fund, while there was a similar story with emerging market strategies.

It is a definite issue that the unprecedented bull market in 2021 has created some awkward comparators for Polar Capital. It is a positive, however, that the company has settled a long-running legal dispute with FPA over the Phaeacian transaction, which explains part of the £6mn of higher-than-expected costs. Broker Numis expects a forward price/earnings ratio of 12.9, with a “paid to wait” dividend yield of 9 per cent for 2024. Hold.

Last IC view: Buy, 535p, 27 Jun 2022