Polar Capital Technology Trust PLC · LSE:PCT
Polar Capital Technology Trust — FY2016 Earnings Presentation
47 slides from Polar Capital Technology Trust's earnings presentation, Jul 5, 2016
Slide 1: Full-year results presentation
Full-year results presentation 5 July 2016 This presentation is for one-on-one use with non-US professional investors only www.polarcapital.co.uk This presentation is for the intended recipient only
Slide 2: Results As At 30 April 2016
Results As At 30 April 2016 Year ended Year ended Change 30/04/15 30/04/16 (y/y) Net Assets £793,019,000 £801,307,000 +1.0% NAV per ordinary share 599.25p 605.51p + 1.0% Price per ordinary share 592.00p 566.00p - 4.4% Benchmark Change - 0.1% Ordinary shares in issue 132,336,159 132,336,159 -- Source
Slide 3: PCT As At 30 June 2016
PCT As At 30 June 2016 Year ended Year ended Change As at 30/04/15 30/04/16 (y/y) 30/06/16 Net Assets £793,019,000 £801,307,000 +1.0% £919,022,000 NAV per ordinary share 599.25p 605.51p + 1.0% 694.46p Price per ordinary share 592.00p 566.00p - 4.4% 625.0p Benchmark Change - 0.1% Ordinary shares in i
Slide 4: Full Year Review
Full Year Review DJ World Technology vs. FTSE World TR since Apr 2015 • Global equities (FTSE World + 0.4%) consolidated earlier gains amid downward revisions to global growth, commodity price weakness and Chinese economic deceleration. • However, Sterling weakness (-5%/-7%/- 15% vs. Dollar / Euro /
Slide 5: Full Year Review
Full Year Review US technology small caps vs. large caps since Apr 2015 • Small-cap US technology stocks underperformed during the year (-0.2% vs. 1.7%) ameliorated by a strong April. • NAV performance (+1.0%) exceeded the benchmark by 1.1%. • New technology cycle appears to have entered a more pern
Slide 6: Style Headwinds Abating
Style Headwinds Abating US technology small caps vs. large caps: 2009 - Present Source: Bloomberg, 1 July 2016 For the intended recipient only. Please refer to the Important Information at the end of this presentation. 6
Slide 7: 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, 27 May 2016. Past performance is not indicative or a guarantee of future returns. For t
Slide 8: A Disruptive New Technology Cycle
A Disruptive New Technology Cycle 2010 2011 2012 2013 Delivering IT Public clouds Smartphones „Big data‟ as a service mass production mass adoption new (cheap) tools Source: Polar Capital. For the intended recipient only. Please refer to the Important Information at the end of this presentatio
Slide 9: A Disruptive New Technology Cycle
A Disruptive New Technology Cycle Source: Polar Capital. For the intended recipient only. Please refer to the Important Information at the end of this presentation. 9
Slide 10: 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 11: A Disruptive New Technology Cycle
A Disruptive New Technology Cycle IT spending: IT spending: Contraction in IT spending during downturn1 Information Processing Equipment as % of GDP (1945-present)2 1. Source: Goldman Sachs, August 2014. 2. Source: Ned Davis Research, 31 March 2016. For the intended recipient only. Please refer to t
Slide 12: 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 1.7% in constant-currency 1. BI / Analytics 2. Infrastructure / Data Centre 3. Cloud 4. ERP 5. Digital Marketing Cisco EMC HP* -
Slide 13: Cloud Computing: IT As A Variable Cost
Cloud Computing: IT As A Variable Cost • Cloud computing came of age during 2013, evidenced by Adobe‟s move to SaaS and Amazon $600m CIA contract win • The shift towards hybrid and public clouds incremental capacity is being added beyond the enterprise • Computing and storage costs headed lower: A
Slide 14: Broadband Applications: Expanding The Market
Broadband Applications: Expanding The Market • Social, mobile and cloud adoption driving growth of online advertising, e-commerce and SaaS • iPhone/Android users access e-commerce 4x more vs. other smartphones and 10-20x non-smartphone users1 • Facebook mobile monetisation has driven a significant r
Slide 15: Ubiquitous Computing: Driving Mobile Data
Ubiquitous Computing: Driving Mobile Data • Smartphone penetration (> 1.5bn globally1) has transformed the value of the Internet (Metcalfe‟s Law) • Mobile data traffic will grow to 292 exabytes in 2019 from 30 exabytes in 2014 (10x growth / 57% CAGR driven by video)2 • Less exposure to smartphones (
Slide 16: Emerging Markets & Productivity Enablers
Emerging Markets & Productivity Enablers • Favoured Themes: China Consumption / Internet, Factory Automation / Sensors & Moore's Stress • Once in a decade shift towards consumption growth in China favours internet sector (despite slowing GDP growth) • China upper middle class private consumption set
Slide 17: Fortunately Tech Is Reaching Into Other Markets
Fortunately Tech Is Reaching Into Other Markets Advertising Commerce Automotive Software (as a Service) • Internet advertising worth • eCommerce worth $260bn • ADAS penetration to reach • Rental software model $121bn this year1 in the US last year 70% by 20254 enabled by Cloud • 45% of media consump
Slide 18: New Cycles Challenge The Value Of Incumbency
New Cycles Challenge The Value Of Incumbency Select M&A activity1 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 Feb-13 Dell Private equity 9% 17,743 June-13 ExactTarget Salesforce 50% 2,419 Jul -13 Sou
Slide 19: New Cycles Challenge The Value Of Incumbency
New Cycles Challenge The Value Of Incumbency US Technology sector (un-weighted) 1969 – present Absolute performance Relative performance vs. S&P 500 Index Source: Piper Jaffray, January 2016. Past performance is not indicative or a guarantee of future returns. For the intended recipient only. Please
Slide 20: 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, May 2016. 2. Source: Pacific Crest, May 2016. Past performance is not indicative or a guarantee of
Slide 21: Less Demanding Next-generation Valuations
Less Demanding Next-generation Valuations IT security valuation: Cloud vs legacy valuation EV / Forward 12 month revenue multiples1 EV / Trailing 12 month revenue multiples2 1. Source: Citi, May 2016. 2. Source: Merill Lynch, May 2016. Past performance is not indicative or a guarantee of future retu
Slide 22: PCT Positioning
PCT Positioning Sector exposure (%) Market cap exposure (%) Internet Software & Services 27.6% Software 25.9% Large Cap (>$10bn) 64.4% Semiconductors & Semiconductor Equipment 12.9% Mid Cap (>$1bn - $10bn) 29.3% Technology Hardware, Storage & Peripherals 8.4% Internet & Catalog Retail 4.6% Small Cap
Slide 23: PCT Positioning
PCT Positioning Largest overweights Largest underweights Market cap exposure versus benchmark1 8x8 Apple Activision Blizzard ASML Holding Alibaba Group Holding Broadcom Large-cap -19.4% Amazon Canon Inc CyberArk Software Cisco Systems Demandware Cognizant Technology Solutions Dolby Laboratories Inc
Slide 24: PCT Positioning
PCT Positioning Thematic breakdown1,2 Thematic breakdown relative to benchmark1,2 15.0 10.0 Legacy 8% 5.0 Internet 0.0 Semiconductors 29% 12% -5.0 Smartphones 5% -10.0 -15.0 Apple 6% Medical Technology -20.0 1% Electric Vehicles Cloud: applications 0% 16% -25.0 Solar 1% Emerging 1% IoT -30.0 Cloud:
Slide 25: PCT Positioning
PCT Positioning Index Index ex PCT1 Top 100 Apple Sales growth 2017 – PCT vs. benchmark2 PE (Median) CY 21.4 17.2 17.3 70.0 NY 18.3 15.1 15.3 Earnings growth (Median) CY 10.1 6.9 7.0 NY 17.5 12.7 12.6 60.0 EV/Sales (Mean) CY 4.7 3.7 3.7 NY 3.9 3.3 3.3 EV/Sales (Median) CY 3.9 3.5 3.6 50.0 NY 3.5 3.2
Slide 26: Emerging Themes
Emerging Themes Source: Gartner, August 2015. For the intended recipient only. Please refer to the Important Information at the end of this presentation. 26
Slide 27: The Internet of Things (IoT)
The Internet of Things (IoT) • The Internet of Things1 is a network of physical objects that communicate, sense and interact with their internal states or the external environment. At its best, it envisions a world where computing is so ubiquitous that it becomes invisible. • By 2020, each person wi
Slide 28: The Internet of Things (IoT)
The Internet of Things (IoT) Wearables Industrial Internet Smart Buildings Augmented Reality Autonomous Vehicles Today Future Home Automation Security Media Hub / TV Connected Car / ADAS Smart Cities For the intended recipient only. Please refer to the Important Information at the end of this presen
Slide 29: Augmented / Virtual Reality
Augmented / Virtual Reality 2 Augmented reality (AR) is a live direct or indirect view of a physical, real-world environment whose elements are augmented by computer-generated sensory input such as sound, video, graphics or GPS data1. 4 Virtual Reality (VR) is a computer- simulated environment that
Slide 30: Augmented / Virtual Reality
Augmented / Virtual Reality 2 Augmented reality (AR) is a live direct or indirect view of a physical, real-world environment whose elements are augmented by computer-generated sensory input such as sound, video, graphics or GPS data1. 4 Virtual Reality (VR) is a computer- simulated environment that
Slide 31: Accelerating Pace of Innovation – Videos
Accelerating Pace of Innovation – Videos • Additive manufacturing (AM) or “3D printing” – GE GE9X fan blades … https://www.youtube.com/watch?v=jwqNIh-Fwpc – GE Avio Aero AM … https://www.youtube.com/watch?v=UlGyf-oKhI8 – Proto Labs … https://www.youtube.com/watch?v=gCxVENFTpKM • Augmented/Virtual re
Slide 32: What Gives Us Confidence Here?
What Gives Us Confidence Here? • The greatest risk would be a repeat of ‟08/‟09, but to us a US recession seems unlikely – Macro data implies a two speed US economy – consumer confidence / jobs / energy (supportive) vs manufacturing (weak) – Our company meetings suggest secular drivers are strong –
Slide 33: Summary & Outlook
Summary & Outlook • The public cloud at scale = a second more pernicious (highly deflationary) phase for incumbents (& ETF‟s) – Amazon AWS Q4‟15 trailing 12 month revenue $7.9bn + 69% y/y – for every $ that shifts 3-4x is lost to traditional IT – New technologies are no longer complementary to legac
Slide 34: Appendix
Appendix For the intended recipient only. Please refer to the Important Information at the end of this presentation. 34
Slide 35: Introduction To The Team
Introduction To The Team • Technology is at the core of the Polar Capital business • One of the largest technology franchises in Europe with c.US$2.0bn under management • Seven dedicated technology specialists – strong multi-cycle track record Global Technology Polar Capital Technology Strategy Fund
Slide 36: Investment Framework
Investment Framework 4,000+ universe Dynamic definition of technology Thematic overview Real-world changes in user behaviour S-Curve inflections What we look for Secular themes / pure-plays Last-generation winners What we avoid Public venture capital Growth bias – rev/earnings / cash flow Valuation
Slide 37: S-Curve: Identifying Themes & Product Cycles
S-Curve: Identifying Themes & Product Cycles R&D High growth Low growth No growth negative OM% expanding OM% stable OM% uncertain / declining OM% Dev mkt smartphones Wireless Networking (802.11n / ac)Enterprise software Server & Storage Virtualisation IT Services Tablets / Ultrabooks (including Mac
Slide 38: …Leaving Small/Mid Caps At Compelling Levels
…Leaving Small/Mid Caps At Compelling Levels Russell 2000 Technology Index (small/mid cap) relative to Russell 1000 Technology Index (large cap) (2 May 2008 – 27 May 2016) Source: Bloomberg (chart) & Polar Capital (annotation), 27 May 2016. Past performance is not indicative or a guarantee of future
Slide 39: Just Another Growth Scare?
Just Another Growth Scare? US 10 year TSY yields (yellow) and small/mid cap tech rel. to large cap tech (RGUSTS/RGUSTL Index) (white) Source: Bloomberg (chart) & Polar Capital, 27 May 2016. Past performance is not indicative or a guarantee of future returns. For the intended recipient only. Please r
Slide 40: Team Biographies
Team Biographies Ben Rogoff, Director – Technology Experience: 20 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 20 years. Prior to joi
Slide 41: 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 42: PCT Active Share
PCT Active Share PCT active share 60 55 50 % 45 40 35 Source: Polar Capital, StatPro, 31 March 2016. For the intended recipient only. Please refer to the Important Information at the end of this presentation. 42
Slide 43: PCT Performance
PCT Performance 10 year PCT performance: April 2005 – April 2015 375 350 325 300 275 250 225 200 175 150 125 100 75 Apr 05 Oct 05 Apr 06 Oct 06 Apr 07 Oct 07 Apr 08 Oct 08 Apr 09 Oct 09 Apr 10 Oct 10 Apr 11 Oct 11 Apr 12 Oct 12 Apr 13 Oct 13 Apr 14 Oct 14 Apr 15 Source: Bloomberg, as at 2/8/11 Dow J
Slide 44: Appendix
Appendix For the intended recipient only. Please refer to the Important Information at the end of this presentation. 44
Slide 45: New Cycles Challenge The Value Of Incumbency
New Cycles Challenge The Value Of Incumbency Inflation adjusted UK holiday expenditure: 1951-1996 overseas domestic 1. Source: www.seasidehistory.co.uk. For the intended recipient only. Please refer to the Important Information at the end of this presentation. 45
Slide 46: 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 47: 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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