Many investors in boutique asset manager Polar Capital (LSE: POLR), myself included, will be nursing some losses after a bruising few months for the share price. But could it actually be a top UK share in the coming years?
Why has the share price been falling?
The Polar Capital share price has had a torrid six months. Over that timeframe, the shares have fallen 35%, and over the last three months by 25%. Over the last 12 months, the share price is down about 14%. The shares peaked last summer, but since the trajectory has been downwards.
What’s been driving the falls most recently, I think, is the fact that Polar Capital has a big technology fund under management. With share prices falling, I’d imagine investors are concerned that this fund and its associated fees may shrink. That would possibly make Polar’s future growth lower than previously expected.
Yet a trading update in July last year was pretty positive so I don’t see a really good reason why the shares started falling. My best guess is a good run for the shares that potentially led to some profit-taking. This was coupled more recently with inflation and falling tech stock prices to add to the damage.
Is it a good long-term buy?
This all makes me think the situation is not going to last too long. Polar Capital could well be a good longer-term buy, given its high dividend yield and low valuation. Turning to the former, the dividend yield is now 7%, much higher than just a few months ago because the share price has dropped. And the shares trade on a P/E of nine. That’s low in itself but really low compared to a competitor like Liontrust, which trades on a P/E of 17.
Polar Capital has been acquisitive in recent years, diversifying its assets under management and growing. It has 25 funds that aren’t specifically related to technology. So there’s a lot more under the bonnet. The healthcare opportunities fund, for example, has assets under management of £1.4bn, although it should be said it’s one of the larger non-tech funds. Other funds have a lot of room to grow.
It has historically had a strong run of revenue and profit growth, along with high margins. Combined, these potentially show it to be a high-quality business and probably not one that deserves to see its shares down 25% in just three months. To me, the sell-off looks overdone.
Polar Capital — a top UK share?
Nonetheless, the Polar Capital share price could remain under pressure for a while if technology stocks also remain under pressure because of inflation and interest rate rises. Yet I believe the shares are good value and the business is much more than a technology fund. For these reasons, I’m going to keep adding to my holding. For me, the share price has become disconnected from the performance of the business. It appears to be a top UK share and I think it should do very well in the coming years.
