Polar Capital Technology Trust PLC · LSE:PCT
Polar Capital Technology Trust — H1 2023 Earnings Presentation
42 slides from Polar Capital Technology Trust's earnings presentation, Dec 12, 2022
Slide 1: Half Year Results To 31 October 2022
Polar Capital Technology Trust plc Half Year Results To 31 October 2022 polarcapitaltechnologytrust.co.uk This presentation is for use with non-US investors only.
Slide 2: Results As At 31 October 2022
Results As At 31 October 2022 Year ended As at Change 30/04/22 31/10/22 (y/y) Net Assets £3,050,985,000 £2,711,516,000 -11.1% NAV per ordinary share 2305.13p 2095.24p -9.1% Price per ordinary share 2040.00p 1894.00p -7.2% Benchmark Change -8.9% Ordinary shares in issue* 132,356,426 129,413,314 -2.2%
Slide 3: PCT As At 30 November 2022
PCT As At 30 November 2022 Year ended As at Change As at 30/04/22 31/10/22 (y/y) 30/11/22 Net Assets £3,050,985,000 £2,711,516,000 -11.1% £2,783,525,000 NAV per ordinary share 2305.13p 2095.24p -9.1% 2156.59p Price per ordinary share 2040.00p 1894.00p -7.2% 1874.00p Benchmark Change -8.9% Ordinary s
Slide 4: Half Year Review
Half Year Review DJ World Technology vs. FTSE World TR since April 2022 • Global equities (FTSE World +0.3% in Sterling terms) struggled 12.00 against a challenging investment backdrop characterised by high inflation and the steepest US rate tightening cycle since the early 10.00 1980s. Tighter mone
Slide 5: Half Year Review
Half Year Review • US technology outperformance vs. RoW technology: W1TECN -8.9% vs W2TEC -17.5%. US large-caps -5.6% vs small-caps -4.1% • Underperformance of mega-cap technology (ex-Apple): GS TMT MegaCap Tech -14.8% • No sub-sector was immune from macroeconomic impacts: Internet -10.2%, Semis -9.
Slide 6: The Polar Capital Technology Team
The Polar Capital Technology Team • Technology is at the core of the Polar Capital business • One of the largest technology franchises in Europe with c.US$8.2bn under management • Eight dedicated technology specialists – strong multi-cycle track record Global Technology Polar Capital Technology Auto
Slide 7: Investment Framework
Investment Framework 4,000+ universe Dynamic definition of technology Thematic overview Real-world changes in userbehaviour S-Curve inflections What we look for Secular themes / pure-plays Last-generation winners What we avoid Public venturecapital Growth bias – rev/earnings / cash flow Valuation Pr
Slide 8: Thematic Investing: Hype vs. Reality
Thematic Investing: Hype vs. Reality Searching for revenue growth and cash flow inflections R&D High growth Low growth No growth Pre-Revenue negative OM% expanding OM% stable OM% uncertain / declining OM% Value Trap Mobile Payment Connected TV Unified Comms Sales (blue) eCommerce IT Services EUV Lit
Slide 9: Technology Disruption: The Story of the Decade
Technology Disruption: The Story of the Decade Tech has driven earnings growth since 20091 Helping growth stocks sharply outperform value2 Tech vs. Ex. Tech earnings (1985 – July 2022) World Value vs. Growth stocks (1974 – March 2022) Source: 1. Datastream, Worldscope, Goldman Sachs Global Investmen
Slide 10: Macroeconomic Headwinds
Macroeconomic Headwinds • A more challenging investment backdrop: inflation, tightening financial conditions, economic slowdown, cost of living crisis, Ukraine… • Inflation at highest levels in decades: global inflation forecast at 8.8% in 2022 before expected to decline to 6.5% next year1 • Sharply
Slide 11: Macroeconomic Headwinds
Macroeconomic Headwinds • A more challenging investment backdrop: inflation, tightening financial conditions, economic slowdown, cost of living crisis, Ukraine… • Inflation at highest levels in decades: global inflation forecast at 8.8% in 2022 before expected to decline to 6.5% next year1 • Sharply
Slide 12: Technology Outlook
Technology Outlook • Slower global growth / tough comps weighing on IT spending est. $4.4trn ‘22 (+0.8% y/y growth in CC terms) vs 10.2% y/y ‘21 1 – Reacceleration anticipated next year with forecasts of 5.1% y/y growth led by software (+11.3% y/y) and device normalization (-0.6% vs. -8.4%) 1 • Tech
Slide 13: Core Investment Themes
Core Investment Themes Online Cloud Software as Mobility / EV Data Economy / Connectivity / Advertising / Infrastructure / a Service Clean Energy AI 5G Commerce Security Source: Polar Capital. It should not be assumed that recommendations made in future will be profitable or will equal performance o
Slide 14: Core Investment Themes
Core Investment Themes Estimated Thematic Exposure 17.7% Connectivity / 5G 16.4% SaaS / Software 15.4% Cloud Infrastructure / Security 14.9% Data Economy / Artificial Intelligence 10.9% Mobility / EV / Clean Energy 10.4% Online Advertising / eCommerce 5.8% Payments / Fintech 5.2% Digital Entertainme
Slide 15: Core Investment Themes
Core Investment Themes Estimated Thematic Exposure 25% 24% 23% 22% 21% 20% 19% 18% 17% 16% 15% 14% 13% 12% 11% 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% May-21 May-22 Jun-22 May-20 Jun-21 Dec-21 Jan-22 Nov-22 May-18 May-19 Jun-20 Nov-20 Dec-20 Jan-21 Nov-21 Nov-19 Dec-19 Jan-20 May-17 Jun-18 Jun-19 Nov-18 D
Slide 16: Online Advertising / eCommerce
Online Advertising / eCommerce • Global online advertising $455bn ‘21E +20.4% y/y, c. 55% of total ww ad spend. 2020 digital ad +12.7% y/y resilient vs traditional ad -15.7% y/y1 • Facebook added 2m+ advertisers in 2020 to reach a total of over 10m2 vs 200m businesses using Facebook’s tools or 800m
Slide 17: Online Advertising / eCommerce
Online Advertising / eCommerce • eCommerce growth continues unabated and is forecast at $4.9tr in 2021E, representing c.20% of total retail sales1 • Amazon’s share of US e-commerce now 40%; smaller platforms benefitting disproportionately from COVID acceleration / DTC2 • Business to Business (B2B) t
Slide 18: Software as a Service (SaaS)
Software as a Service (SaaS) • Software wins in a hybrid world for work: communication, collaboration, workflow automation & orchestration • Customer experience (CX) focus crucial for businesses to remain relevant: CRM, UCaaS, CPaaS, voice, payments • Software as a service (SaaS) targets a $412bn op
Slide 19: Cloud Infrastructure / Security
Cloud Infrastructure / Security • Having debunked many of the earlier barriers to adoption, we expect Cloud migration to accelerate over the coming years • Expect ‘all’ incremental capacity added in cloud: c. 45% of total IT spend and 59% of application software spend by 20241 • Cloud deflation to b
Slide 20: Digital Entertainment
Digital Entertainment • Video games: $175.8bn market in 2021 → $204.6bn by 2023E (~8% CAGR), driven by new console cycle, mobile and AR/VR1 • Rise of the Metaverse: Virtual worlds beyond gaming; Roblox daily active users (DAUs) +85%, bookings +171% in 20202 • Future Platforms: streaming video = digi
Slide 21: Data Economy / Artificial Intelligence (AI)
Data Economy / Artificial Intelligence (AI) • Exponential growth in data/compute. Machine learning (ML) compute doubles every 3.4 months1. Datasphere doubles every 3 years2 • More data is created in hour today than in a year 20 years ago3. A single AV may generate 4TB of data/ day, equiv. to 3,000 p
Slide 22: Connectivity / 5G
Connectivity / 5G • Current networks insufficient capacity / latency to support an increasingly connected world (c.26bn IoT connections by 2026)1 • 5G up to 100x faster with low latency (<1ms), infrastructure spending to reach $23bn by 20222 • Apple unique; Premium pricing (record ASPs). Q2 ’21 - 70
Slide 23: Industry 4.0: Automation / Simulation
Industry 4.0: Automation / Simulation • The Fourth Industrial Revolution underway driven by Cyber Physical Systems, Internet of Things and Cloud Services • Edge AI, low latency from 5G and advanced machine vision should enable cobots to self-learn tasks • Over 25% of manufacturing tasks that can be
Slide 24: Payments / Fintech
Payments / Fintech • New flows: payments TAM rapidly expanding from $33tn to as large as $150tn with B2B, B2C, G2C and higher card penetration1 • Covid Acceleration: pandemic accelerated the decline of cash by >3 years as 2020 results exceeded prior expectations for 20232 • From Payments to Fintech:
Slide 25: Mobility / EV / Renewables
Mobility / EV / Renewables • Battery Electric Vehicles BEVs expected >15% of global auto sales in 2025 from ~3% in 20201 • BEV total cost of ownership (TCO) increasingly competitive. More favourable than ICE over 5 years in 20222 • EV have 2x Semi content vs Internal Combustion Engine (ICE)3. Increm
Slide 26: Emerging Themes
Emerging Themes Source: Gartner, August 2022. For non-US investor use only. Please refer to the Important Information at the end of this presentation. 26
Slide 27: The Metaverse
The Metaverse • First coined in 1992, the term ‘Metaverse’ (MV) entered the Mark Zuckerberg x Hernán Cortés - 20211 investment vernacular last year following Facebook’s decision to rename itself ‘Meta’. • What is it? An evolutionary ‘successor state to the mobile Internet’ likely to emerge over time
Slide 28: Technology And The Climate Challenge
Technology And The Climate Challenge • Vast majority of 2030 CO2 emissions savings in a Net Zero Scenario come from technology (renewables & energy efficiency)1 • Target 2030 economy will be ~40% larger but use 7% less energy: 4% annual rate of energy intensity improvement, ~3x last 20 years’1 • $5t
Slide 29: Technology And The Climate Challenge
Technology And The Climate Challenge “The combination of exponentially decreasing costs and rapid Electricity from renewables became cheaper as we increased exponentially increasing deployment is different to anything capacity – electricity from nuclear and coal did not2 observed in any other energy
Slide 30: Technology Valuations
Technology Valuations Absolute sector valuation (PE): Relative sector valuation (PE): At post GFC highs (1992 – present) At / around market level – with superior balance sheet Source: Ned Davis, 2 December 2022. Copyright 2018 Ned Davis Research, Inc. Further distribution prohibited without prior pe
Slide 31: 'Next Generation' Valuations
'Next Generation’ Valuations Internet valuation (equal cap weighted): Software as a Service (SaaS) valuation: EV/forward 2 year EV/EBITDA levels1 EV/forward 12 month revenue multiples2 30.0x 25.0x 20.0x 15.0x 10.0x 5.0x 0.0x ML Internet Index Source: 1. Bloomberg, 30 November 2022. UCITS Internet se
Slide 32: 'Next Generation' Valuations
'Next Generation’ Valuations IT security valuation: Cloud vs legacy valuation EV/forward 12 month revenue multiples1 EV/trailing 12 month revenue multiples2 25x 20x EV/ trailing 12 month sales 15x 10x 5x 0x LEGACY CLOUD Source: 1. Citi Research, FactSet, November 2022. 2. Keybanc, November 2022. Inc
Slide 33: PCT Positioning
PCT Positioning Sector exposure (%) Market cap exposure (%) Software 25.5% Semiconductors & Semiconductor Equipment 25.1% 87.9% Large Cap (>$10bn) Technology Hardware, Storage & Peripherals 12.5% Interactive Media & Services 9.1% Mid Cap ($1bn - $10bn) 11.5% IT Services 7.4% Small Cap (<$1bn) 0.6% I
Slide 34: PCT Positioning
PCT Positioning Largest overweights Largest underweights Market cap exposure versus benchmark1 Advanced Micro Devices Adobe Systems Adyen NV Alphabet Amazon Apple Large-cap -4.9% Arista Networks Applied Materials CloudFlare Broadcom CrowdStrike Holdings Cisco Systems CyberArk Software IBM Mid-cap 4.
Slide 35: Portfolio Structure – Active Positions & Valuation
Portfolio Structure – Active Positions & Valuation A diversified portfolio, capturing secular growth potential of key themes Fund Index Active Fund Index Active Valuation Snapshot Technology Index Difference (30 November 2022)1 Trust1 Top 1001 Advanced Micro Devices 3.24% 0.98% 2.26% Apple 9.06% 17.
Slide 36: Portfolio Structure – Liquidity Profile
Portfolio Structure – Liquidity Profile Liquidity horizon evaluation 16,000 6 14,000 5 12,000 4 10,000 Days to liquidate 8,000 3 AUM (USDM) 6,000 2 4,000 1 2,000 0 - Dec-17 Oct-19 Oct-20 Jan-18 Jun-18 Oct-18 Nov-18 Dec-18 Jan-19 Jun-19 Nov-19 Dec-19 Jan-20 Jun-20 Nov-20 Dec-20 Jan-21 Jun-21 Oct-21 N
Slide 37: Appendix
Appendix For non-US investor use only. Please refer to the Important Information at the end of this presentation.
Slide 38: Team Biographies
Team Biographies Ben Rogoff – Partner Experience: 27 years Ben joined Polar Capital in May 2003. He is lead manager of Polar Capital Technology Trust plc and is a Fund Manager of the Polar Capital Global Technology Fund and Polar Capital Automation and Artificial Intelligence Fund. He has been a tec
Slide 39: Team Biographies cont.
Team Biographies cont. Fatima Iu Experience: 16 years Fatima joined Polar Capital in April 2006 and has 16 years’ experience. She is a fund manager on the Polar Capital Technology Fund, Polar Capital Technology Trust and Polar Capital Automation and Artificial Intelligence Fund. She is responsible f
Slide 40: Team Biographies cont.
Team Biographies cont. Nick Williams Experience: 7 years Nick joined Polar Capital in June 2019 as an analyst on the Polar Capital Technology team. Prior to joining Polar Capital, Nick worked at Neptune Investment Management as the Assistant Fund Manager on the US Opportunities growth fund. Prior to
Slide 41: Important Information
Important Information Polar Capital 16 Palace Street London SW1E 5JD Important Information: This is a marketing communication. Please refer to the Polar Capital Technology Trust plc offer document and to the KID before making any final investment decisions. This document is provided for the sole use
Slide 42: Important Information Cont.
Important Information Cont. Polar Capital 16 Palace Street London SW1E 5JD Regulatory Status: Polar Capital LLP is a limited liability partnership number OC314700. It is authorised and regulated by the UK Financial Conduct Authority (“FCA”) and is registered as an investment adviser with the US Secu
Polar Capital Technology Trust — H1 2023 Earnings Presentation on 6ix