Polar Capital Technology Trust PLC · LSE:PCT
Polar Capital Technology Trust — H1 2017 Earnings Presentation
54 slides from Polar Capital Technology Trust's earnings presentation, Dec 16, 2016
Slide 1: Polar Capital Technology Trust Plc Interim Results Presentation
Polar Capital Technology Trust Plc Interim Results Presentation 16 December 2016 This presentation This presentation is is for for one-on-one the intendeduse with non-US recipient only professional investors only www.polarcapital.co.uk www.polarcapital.co.uk
Slide 2: Unaudited Preliminary Half-Year Results
Unaudited Preliminary Half-Year Results Year ended As at Change 30/04/16 31/10/16 (%) Net Assets £801,307,000 £1,131,349,000 + 41.2% NAV per ordinary share 605.5p 854.91p + 41.2% Price per ordinary share 566.00p 795.00p + 0.7% Benchmark Change + 39.1% Ordinary shares in issue 132,336,159 132,336,159
Slide 3: Technology Leadership
Technology Leadership Dow Jones World Technology index vs. FTSE World index: CYTD Source: Bloomberg, 12 December 2016. Past performance is not indicative or a guarantee of future returns. For the intended recipient only. Please refer to the Important Information at the end of this presentation. 3
Slide 4: Post-Trump Rotation: S&P 500 Value/Growth
Post-Trump Rotation S&P Value / S&P Growth vs. 10yr UST yields1 S&P Value / S&P Growth: 2012 – present2 US 10-year Treasury Yield S&P 500 Value/Growth Small-caps underperforming Source: 1. Bloomberg, 13 December 2015 2. Bloomberg, 13 December 2016. Past performance is not indicative or a guarantee o
Slide 5: Post-Trump Rotation
Post-Trump Rotation Global Fund Manager positioning, December 2016 Month-on-month changes to Global FMS positioning The longs and shorts, relative to Global FMS history* (Dec’16 vs Nov ‘16) Source: BofA Merrill Lynch Global Fund Manager Survey. 13th December 2016. * data since 2006 for commodities &
Slide 6: Post-Trump Rotation: Cloud vs legacy valuations
EV/ trailing 12 month sales 10x 12x 14x 0x 2x 4x 6x 8x Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Source: Bloomberg, 4 December 2015. Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Post-Trump Rotation Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Legacy Feb-13 Apr-13 For the intended recipient only. Pl
Slide 7: The Internet (At 25)
The Internet (At 25) In 1995, <1% of the world’s population had an Internet connection. Today c. 40% or 3.44bn people are ‘online’. 11 billion connected devices today Every second, >40,000 Google queries are searched Internet traffic will reach 1.1 and >2m emails are sent zettabytes in 2016 4.7bn We
Slide 8: Revisiting Highs (But This Time With Earnings)
Revisiting Highs (But This Time With Earnings) PCT share price performance (1997 – present) June 2016 March 2000 S&P Tech earnings: $34.78 S&P Tech earnings: $13.09 PE: 21x PE: 70x PCT in Sterling PCT in US Dollars Source: Bloomberg, 30 November 2016; annotations: NDR, July 2016. Past performance is
Slide 9: A Disruptive New Technology Cycle
A Disruptive New Technology Cycle Computing: The cost of 1m transistors Storage: The cost of storing one gigabyte of data Bandwidth: The cost of 1,000Mbps of bandwidth Source: KPCB, Deloitte May 2014. For the intended recipient only. Please refer to the Important Information at the end of this prese
Slide 10: Ubiquitous Computing
Ubiquitous Computing ‒ PCT 2012 Source: Polar Capital. For the intended recipient only. Please refer to the Important Information at the end of this presentation. 10
Slide 11: Ubiquitous Computing
Ubiquitous Computing Smartphone installed base: 2008 – 2017E Smartphone penetration has transformed the value of the Internet (Metcalfe’s Law) Source: Statista, August 2016. All opinions and estimates constitute the best judgment of Polar Capital as of the date hereof, but are subject to change with
Slide 12: Cloud Computing (‘Mass Production Of IT’)
Cloud Computing (‘Mass Production Of IT’) ‒ PCT 2011 Source: Polar Capital. For the intended recipient only. Please refer to the Important Information at the end of this presentation. 12
Slide 13: Cloud Computing (‘Mass Production Of IT’)
Cloud Computing (‘Mass Production Of IT’) IT workloads in public clouds, by company size 30% 25% 20% 15% 10% 5% 0% End of 2013 End of 2014 End of 2015 Under US$5bn in Revenue Over US$5bn in Revenue Source: Morgan Stanley, 2015. For the intended recipient only. Please refer to the Important Informati
Slide 14: Big Data
Big Data Volume of data stored (Zettabytes): 2009 – 2025E 180 Every day we create 2.5bn gigabytes of data* The amount of data in the world doubles every 2 years** 0.8 2009 2025 Source: Polar Capital; IDC, March 2016. All opinions and estimates constitute the best judgment of Polar Capital as of the
Slide 15: Low-innovation Internet Era.....??
Low-innovation Internet Era.....?? A hundred years from now, we might look back on the late 20th and early 21st centuries and say, “It was an actively creative society. Then the internet happened and everything got put on hold for a generation.” – Neal Stephenson “Has the ideas machine broken down?”
Slide 16: The Information Age
The Information Age ‒ PCT 2014 Source: Polar Capital. It should not be assumed that recommendations made in future will be profitable or will equal performance of the securities in this document. A list of all recommendations made within the immediately preceding 12 months is available upon request.
Slide 17: The Information Age
The Information Age Number of annual Google searches (bn) Source: Polar Capital, Business Insider 2013. It should not be assumed that recommendations made in future will be profitable or will equal performance of the securities in this document. A list of all recommendations made within the immediat
Slide 18: The Information Age
The Information Age Number of manuscripts / books produced in Europe: 500 - 1800 500,000,000 "Every single day 15% of the questions 50,000,000 people ask of Google are (ones) we've never seen before” 5,000,000 500,000 50,000 5,000 6th 7th 8th 9th 10th 11th 12th 13th 14th 15th 16th 17th 18th Source:
Slide 19: Big Data
Big Data ‒ PCT 2013 Source: Polar Capital. For the intended recipient only. Please refer to the Important Information at the end of this presentation. 19
Slide 20: Disruptive New Networks / Unprecedented Scale
Disruptive New Networks / Unprecedented Scale Centralised, decentralised and distributed networks1 Source: 1. RAND corporation, ‘Where wizards stay up late’’ Other sources: LinkedIn, Statista, June 2016; Amazon, ExportX, December 2015; Alibaba, DMR, August 2016, revenuesandprofits.com, May 2016; Ten
Slide 21: Natural Monopolies Being Created?
Natural Monopolies Being Created? • 310m active users • $74bn revenue in 2015 • 63m Prime members • 63% US search share • 20m items eligible for Prime • 95% US smartphone paid • >350m total products offered search clicks in Q1 • Paid units grew 28% in Q2 • $12.3bn R&D spend (2015) • AWS @ $10bn trai
Slide 22: Accelerating Pace Of Adoption
Accelerating Pace Of Adoption Average company lifespan on S&P 500 index (in years) Source: innosight.com. All opinions and estimates constitute the best judgment of Polar Capital as of the date hereof, but are subject to change without notice, and do not necessarily represent the views of Polar Capi
Slide 23: Accelerating Pace Of Adoption
Accelerating Pace Of Adoption Technology adoption (1900 – 2005) Source: Michael Felton, New York Times, 2013. For the intended recipient only. Please refer to the Important Information at the end of this presentation. 23
Slide 24: Accelerating Pace Of Adoption
Accelerating Pace Of Adoption Top 5 publicly traded companies (by market cap): 2001 – 2016 Source: visualcapitalist.com. The stocks represented herein do not reflect the entire holdings contained within the Fund. It should not be assumed that recommendations made in future will be profitable or will
Slide 25: Accelerating Pace Of Adoption
Accelerating Pace Of Adoption Buyers of $1bn+ VC-backed US companies: Tech vs. Non-tech Source: visualcapitalist.com. The stocks represented herein do not reflect the entire holdings contained within the Fund. It should not be assumed that recommendations made in future will be profitable or will eq
Slide 26: Enterprise Computing Becoming Anachronistic
Enterprise Computing Becoming Anachronistic IT spending: information processing equipment as % of GDP: 1945-present Source: NDR 30 September 2016. For the intended recipient only. Please refer to the Important Information at the end of this presentation. 26
Slide 27: New Cycle Deflation = IT Budget Headwinds
New Cycle Deflation = IT Budget Headwinds Modest IT Spending + Budget Reallocation = GDP + Growth? Rev. Rev. Rev. 2016 IT priorities Growth Growth Growth 20142 20152 20162 1.5% in constant-currency 1. BI / Analytics 2. Infrastructure / Data Centre 3. Cloud 4. ERP 5. Digital Marketing Cisco EMC HP* -
Slide 28: Device Exhaustion
Device Exhaustion • Overall device market will contract for the first time this year –> end user spend falling 0.5% y/y in c/c to $719bn in 2016E1 • 2015 was the worst yet for the PC market (2015: $200bn) with units and revenues declining 10% and 13% y/y respectively2 • Elsewhere, the tablet (2015:
Slide 29: Cloud Became “Inevitable” During 2015…
Cloud Became “Inevitable” During 2015… • Public cloud computing leader Amazon Web Services at c. $10bn of trailing twelve month sales (with operating margins > 20%) • Growing number of traditional companies prepared to go ‘all in’ / evangelise the merits of public cloud computing during 2015 – GE: m
Slide 30: …And Disruption Only Just Beginning
…And Disruption Only Just Beginning • Having debunked many of the earlier barriers to adoption, we expect Cloud migration to accelerate over the coming years • Computing / storage costs headed lower: Amazon Web Services (AWS) has lowered prices 51 times since launch1 • Expect ‘all’ incremental capac
Slide 31: Diminished Value Of Incumbency & M&A
Diminished Value Of Incumbency M&A Technology M&A since 20061 Select M&A activity2 Date Target Acquirer Premium Value $m May-12 Ariba SAP 19% 4,324 Aug-12 Kenexa IBM 42% 1,260 Oct -12 OPNET Riverbed 31% 912 June-13 ExactTarget Salesforce 50% 2,419 Jul -13 Sourcefire Cisco 29% 2,185 Dec-13 Responsy
Slide 32: Software As A Service
Software As A Service • The rental / usage-based model is expanding the software market while threatening incumbent franchises / maintenance • Enabled by Cloud, software as a service (SaaS) targets a $150bn opportunity, c. 27% penetrated today1 • Recent acceleration in M&A supportive of our view tha
Slide 33: Cyber Security
Cyber Security • Security remains one of the more attractive areas within traditional IT budgets, expected to grow c. 10% through 20201 • Favourable regulatory backdrop likely to persist – US National Action Plan calls for a c. 35% increase in spending to $19bn in FY172 • However, priorities shiftin
Slide 34: Internet Advertising
Internet Advertising • Global online advertising worth $156bn in 2015, having grown 13.6% y/y (including headwinds associated with strong USD)1 • US online advertising expected to reach $65bn in 2016, equivalent to 27% of total ad industry spend2 • Size matters: US market increasingly dominated by A
Slide 35: eCommerce
eCommerce • eCommerce growth continues unabated, accounting for 15.3% of US core retail sales at the end of 20151 • Global Retail eCommerce forecast to exceed $4tr by 2020E, from c. $1.5tr today2 • Mobile becoming an integral part of the shopping experience, enabling greater volumes and new use case
Slide 36: Videogames
Videogames • Video game industry worth $90bn in 2015 (+7% y/y) with growth in 2016/17 driven by new console cycle, mobile and AR/VR1 • Improving market dynamics: industry consolidation + focus on blockbuster franchises = greater scale / profitability / barriers to entry • The shift to digital distri
Slide 37: Payments / Fintech
Payments / Fintech • The shift to mobile remains the central and dominant trend in payments while merchant adoption represents the biggest obstacle • Over time the smartphone is likely to replace the physical wallet, aided by the use of biometric authentication • As payments are taken out of the ban
Slide 38: Robotics
Robotics • The Fourth Industrial Revolution underway driven by Cyber Physical Systems, Internet of Things and Cloud Services • Over 25% of manufacturing tasks that can be automated may be performed by robots over the next decade1 • Human-robot collaboration will radically alter the way factories ope
Slide 39: Technology: Undemanding Valuations
Technology: Undemanding Valuations Absolute sector valuation (PE): Relative sector valuation (PE): Compelling vs. history (1992 – present) At / around market level – with superior balance sheet Source: Ned Davis, 2 December 2016. Past performance is not indicative or a guarantee of future returns. F
Slide 40: Technology: Undemanding Valuations
Technology: Undemanding Valuations Internet valuation: Software as a Service (SaaS) valuation: EV / forward 12 month EV/EBITDA levels1 EV / forward 12 month revenue multiples2 1. Source: Goldman Sachs, December 2016. 2. Source: Pacific Crest, 9 December 2016. Past performance is not indicative or a
Slide 41: Technology: Undemanding Valuations
Technology: Undemanding Valuations IT security valuation: Cloud vs legacy valuation EV / forward 12 month revenue multiples1 EV / trailing 12 month revenue multiples2 14x 12x EV/ trailing 12 month sales 10x 8x 6x 4x 2x 0x Dec-09 Jun-10 Sep-10 Dec-10 Jun-11 Sep-11 Dec-11 Jun-12 Sep-12 Dec-12 Jun-13 S
Slide 42: PCT Positioning
PCT Positioning Sector exposure (%) Market cap exposure (%) Software 27.7% Internet Software & Services 26.2% 67.1% Large Cap (>$10bn) Semiconductors & Semiconductor Equipment 15.7% Mid Cap (>$1bn - $10bn) 25.1% Technology Hardware, Storage & Peripherals 9.9% Internet & Direct Marketing Retail 4.0%
Slide 43: PCT Positioning
PCT Positioning Largest overweights Largest underweights Market cap exposure versus benchmark1 8x8 Apple Advanced Micro Devices ASML Holding Amazon Broadcom Large-cap -17.6% Criteo Canon Inc CyberArk Software Cisco Systems Dolby Laboratories Inc Cognizant Technology Solutions Electronic Arts Hewlett
Slide 44: PCT Positioning
PCT Positioning Thematic breakdown1,2 Thematic breakdown relative to benchmark (%)1,2 15.0 Legacy 10.0 11% 5.0 Internet 28% 0.0 Semiconductors 15% -5.0 -10.0 Smartphones 6% -15.0 Cloud: applications Medical Technology 13% 1% -20.0 Apple Electric Vehicles 6% 0% Solar -25.0 Medical Technology IoT Big
Slide 45: PCT Positioning
PCT Positioning Index Index ex PCT1 Top 100 Apple Sales growth 2017 – PCT vs. benchmark2 60.0 PE (Median) CY 22.3 18.4 18.5 NY 20.4 16.4 16.4 Earnings growth (Median) CY 9.4 9.3 9.5 NY 14.3 12.7 12.6 50.0 EV/Sales (Mean) CY 4.7 4.1 4.1 NY 4.0 3.6 3.7 EV/Sales (Median) CY 4.2 3.8 3.8 NY 3.7 3.6 3.6 4
Slide 46: Emerging Themes
Emerging Themes Source: Gartner, August 2016. For the intended recipient only. Please refer to the Important Information at the end of this presentation. 46
Slide 47: Voice As a Computing Interface
Voice As a Computing Interface • Humans can speak 150 vs. type 40 words per minute on average voice should become the most efficient form of computing input1 • Voice queries already account for 20% of Android mobile app searches in the US, while Siri handles >1bn requests per week2 • “As speech re
Slide 48: Autonomous Vehicles
Autonomous Vehicles • Automotive market ripe for reinvention: connectivity / infotainment, ADAS / autonomous driving, vehicle electrification • Global ADAS / autonomous vehicle penetration forecast to grow from 12% in 2015, to 48% in 2020 and 70% by 20251 • Fully autonomous driving by 2020? Technica
Slide 49: Summary & Outlook
Summary & Outlook • PCT offers a differentiated, growth centric and increasingly “active” investment portfolio – Our goal is to deliver outperformance via superior underlying revenue / cashflow / earnings – Risk and volatility reduced through diversification and strength / depth of investment team.
Slide 50: Appendix
Appendix For the intended recipient only. Please refer to the Important Information at the end of this presentation. 50
Slide 51: Team Biographies
Team Biographies Ben Rogoff, Director – Technology Experience: 21 years Ben joined Polar Capital in May 2003. He is lead manager of Polar Capital Technology Trust plc and is also joint manager of the Polar Capital Global Technology Fund. He has been a technology specialist for 21 years. Prior to joi
Slide 52: Team Biographies Cont.
Team Biographies Cont. Xuesong Zhao Experience: 9 years Xuesong joined Polar Capital in May 2012, having spent most of the previous four years working as an investment analyst within the emerging market & Asia team at Aviva Investors, where he was responsible for the technology, media and telecom se
Slide 53: Important Information
Important Information Polar Capital 16 Palace Street London SW1E 5JD Important Information: This document is provided for the sole use of the intended recipient and is not a financial promotion. It shall not and does not constitute an offer or solicitation of an offer to make an investment into any
Slide 54: 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 FCA and is registered as an investment adviser with the US Securities & Exchange Commission (“S
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