Polar Capital Technology Trust PLC · LSE:PCT
Polar Capital Technology Trust — FY2015 Earnings Presentation
46 slides from Polar Capital Technology Trust's earnings presentation, Jul 3, 2015
Slide 1: Polar Capital Technology Trust Plc Full year results presentation
Polar Capital Technology Trust Plc Full year results presentation Ben Rogoff 3 July 2015 This presentation is for one-on-one use with non-US professional investors only www.polarcapital.co.uk
Slide 2: Results As At 30 April 2015
Results As At 30 April 2015 Year ended Year ended Change 30/04/14 30/04/15 (y/y) Net Assets £606,633,000 £793,019,000 + 30.7% NAV per ordinary share 458.4p 599.25p + 30.7% Price per ordinary share 442.00p 592.00p + 33.9% Benchmark Change + 29.5% Ordinary shares in issue 132,336,159 132,336,159 -- So
Slide 3: PCT As At 30 June 2015
PCT As At 30 June 2015 Year ended Year ended Change As at 30/04/14 30/04/15 (y/y) 30/06/15 Net Assets £606,633,000 £793,019,000 + 30.7% £773,102,000 NAV per ordinary share 458.40p 599.25p + 30.7% 584.20p Price per ordinary share 442.00p 592.00p + 33.9% 577.00p Benchmark Change + 29.5% Ordinary share
Slide 4: Full Year Review
Full Year Review DJ World Technology vs. FTSE World TR since Apr 2014 • Global equities (FTSE World + 18.2%) added to their post 2008 gains as PE expansion once again outweighed negative revisions to global growth • Pronounced US dollar strength (+10% vs. GBP) significantly augmented returns • Techn
Slide 5: Full Year Review
Full Year Review US technology small caps vs. large caps since Apr 2014 • Small-cap US technology stocks underperformed modestly during the year (30.9% vs. 32.3%) with 2H strength just failing to offset first half weakness. • NAV performance (+30.7%) exceeded the benchmark by 1.2% • New technology c
Slide 6: Style Headwinds Abating
Style Headwinds Abating US technology small caps vs. large caps: 2009 - Present Small-caps outperforming Small-caps underperforming Source: Bloomberg, 28 August 2014. For non-US investor use 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: Compelling vs. history (1992 – present) Slight discount to market – close to multi-decade lows Source: Ned Davis, 19 June 2015. It should not be assumed that recommendations made in future will be profitabl
Slide 8: Revisiting Our New Cycle Thesis
Revisiting Our New Cycle Thesis 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 non-US investor use only. Please refer to the Important Information at the end of this presentation. 8
Slide 9: Revisiting Our New Cycle Thesis
Revisiting Our New Cycle Thesis Source: Polar Capital. For non-US investor use only. Please refer to the Important Information at the end of this presentation. 9
Slide 10: Deflation: Cost Of Computing
Deflation: Cost Of Computing The cost of 1m transistors Source: KPCB, Deloitte May 2014. For non-US investor use only. Please refer to the Important Information at the end of this presentation. 10
Slide 11: Deflation: Cost Of Storage
Deflation: Cost Of Storage The cost of storing one gigabyte of data Source: KPCB, Deloitte May 2014 For non-US investor use only. Please refer to the Important Information at the end of this presentation. 11
Slide 12: Deflation: Cost Of Bandwidth
Deflation: Cost Of Bandwidth The cost of 1,000Mbps of bandwidth Source: KPCB, Deloitte May 2014 For non-US investor use only. Please refer to the Important Information at the end of this presentation. 12
Slide 13: New Cycle Deflation = IT Budget Headwinds
New Cycle Deflation = IT Budget Headwinds IT spending: IT spending: Information Processing Equipment as % of GDP Contraction in IT spending during downturn1 (1945-present)2 1. Source: Goldman Sachs, August 2014. 2. Source: Ned Davis Research, 31 March 2014. For non-US investor use only. Please refer
Slide 14: New Cycle Deflation = IT Budget Headwinds
New Cycle Deflation = IT Budget Headwinds Modest IT Spending + Budget Reallocation = GDP + Growth? Rev. Rev. Rev. 2015 IT priorities Growth Growth Growth 20142 2015E2 2016E2 3.1% in constant-currency 1. BI / Analytics 2. Infrastructure / Data Centre 3. Cloud 4. ERP 5. Mobile Cisco EMC HP -1% 5% -1%
Slide 15: 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 16: 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 17: Mobile Computing: Making The Internet Ubiquitous
Mobile Computing: Making The Internet Ubiquitous • Smartphone penetration (> 1bn globally1) has transformed the value of the Internet (Metcalfe‟s Law) • Mobile data is forecast to rise 11x between 2013 and 20182, driving infrastructure investment (WiFi and 4G) • Less exposure to smartphones (due to
Slide 18: Apple: Defying The S-Curve
Apple: Defying The S-Curve • Our largest position at c.10.6% of NAV, but one of our largest underweight position versus the benchmark1 • Positives: strong product pipeline, attractive customer base, ecosystem, balance sheet, capital return • Negatives: smartphone penetration, growth challenged ($233
Slide 19: Technology Reach Extending Into Other Industries
Technology Reach Extending Into Other Industries Advertising Commerce Communications Software (as a Service) • Internet advertising worth • eCommerce worth $260bn • c.5.2bn global mobile • Rental software model $121bn this year1 in the US last year handset subscribers2 enabled by Cloud • 45% of medi
Slide 20: Diverging Fortunes
Diverging Fortunes Technology: long-term growth expectations and valuation for top vs. bottom tertile of growth expectations 40% 35% 30% 25% 20% 15% 10% 5% 0% 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 LT Earnings Growth Top Tertile (T1) LT Ear
Slide 21: New Cycles Challenge The Value Of Incumbency
New Cycles Challenge The Value Of Incumbency “The Innovator‟s Dilemma” How low-end disruption occurs over time “This…is about the failure of companies to stay atop their industries when they confront certain types of market and technological change. It's not about the Performance failure of simply a
Slide 22: New cycles challenge the value of incumbency
New cycles challenge the value of incumbency Global Technology M&A avg. premiums: 1995 – 20131 Select M&A activity2 Date Target Acquirer Premium Value $m 60% May-12 Ariba SAP 19% 4,324 Aug-12 Kenexa IBM 42% 1,260 50% Oct -12 OPNET Riverbed 31% 912 Feb-13 Acme Packet Oracle 24% 1,677 Feb-13 Dell Priv
Slide 23: New Cycles Challenge The Value Of Incumbency
New Cycles Challenge The Value Of Incumbency US Technology sector (un-weighted) 1969 – present Source: Piper Jaffray, January 2015. For non-US investor use only. Please refer to the Important Information at the end of this presentation. 23
Slide 24: Less demanding next-generation valuations
Less demanding next-generation valuations Internet Valuation: Software as a Service Valuation: Currently at average historical forward EV/EBITDA levels1 Approaching long term average / 2011 lows of forward EV/Sales2 Source: 1. Goldman Sachs, May 2015. Source: 2. Pacific Crest, May 2015. It should no
Slide 25: Emerging Themes
Emerging Themes Source: Gartner, July 2014. For non-US investor use only. Please refer to the Important Information at the end of this presentation. 25
Slide 26: 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 27: 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 non-US investor use only. Please refer to the Important Information at the end of this presentat
Slide 28: Big Data: What Is It And Why Now?
Big Data: What Is It And Why Now? 90bn 2.8bn Number of monthly searches Global Internet users 2.1bn 157bn Hours of video uploaded pa 1.4bn 90% of the world‟s data created in the last two Smartphone subscribers Monthly active users years alone 30bn 4.9bn Connected devices Messages sent daily 10,000,0
Slide 29: Big Data: New Tools Required To Extract Value
Big Data: New Tools Required To Extract Value • Today companies only retain the data they perceive to be valuable – c. 5% of the total – discarding the rest • The prospect of extracting value from untapped sources has led data to be described as „the next natural resource‟ • Existing IT solutions (h
Slide 30: Big Data: The Automation Of Knowledge Work
Big Data: The Automation Of Knowledge Work • As the mining experience demonstrates, massive datasets challenge our basic assumptions about the value of data • When „n‟ is exceptionally large, enormous value can be extracted from data where individual bytes appear worthless • The ability to process v
Slide 31: Augmented / Virtual Reality
Augmented / Virtual Reality 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. Virtual Reality (VR) is a computer- simulated environment that can
Slide 32: Augmented / Virtual Reality
Augmented / Virtual Reality 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. Virtual Reality (VR) is a computer- simulated environment that can
Slide 33: PCT Positioning
PCT Positioning Sector exposure (%) Market cap exposure (%) Internet Software & Services 22.6% Software 19.6% Large Cap (>$10bn) 72.8% Semiconductors & Semiconductor Equipment 16.9% Mid Cap (>$1bn - $10bn) 22.3% Technology Hardware, Storage & Peripherals 14.0% Communications Equipment 7.5% Small Cap
Slide 34: PCT Positioning
PCT Positioning Largest overweights Largest underweights Market cap exposure versus benchmark1 Alibaba Group Holding Apple Amazon ASML Holding Facebook Avago Technologies Herald Investment Trust Broadcom Large-cap -11.26% Illumina Canon Inc Keyence Cognizant Technology Solutions LAM Research eBay Li
Slide 35: PCT Positioning: Thematic breakdown
PCT Positioning Thematic breakdown1,2 Thematic breakdown relative to benchmark1,2 10.0 Legacy 9% 5.0 Internet 25% 0.0 -5.0 Semiconductors 12% -10.0 Smartphones -15.0 6% Cloud: applications -20.0 8% -25.0 Other IoT Smartphones Big data Cloud: infrastructure Cybersecurity Payments Electric Vehicles So
Slide 36: PCT Positioning
PCT Positioning Sales growth 2016 – PCT vs. benchmark1 70 60 50 40 Weight 30 20 10 0 <0 0:10 10:20 20:30 30:40 40:50 >50 Best Estimate Sales Growth 2016 PCT GROSS WEIGHT BENCH GROSS WEIGHT Source: Polar Capital, 12 June 2015. 1. Benchmark: Dow Jones World Technology Index (TR). Past performance is n
Slide 37: 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 38: Outlook
Outlook • We remain constructive on markets, although anticipate greater volatility given geopolitical risk – aligned interests / valuations in line with long-term averages / paucity of alternatives • Our conviction in a new technology cycle continues to increase – pace of innovation (and disruption
Slide 39: Appendix
Appendix For non-US investor use only. Please refer to the Important Information at the end of this presentation. 39
Slide 40: 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 41: Team Biographies
Team Biographies Ben Rogoff, Director – Technology Experience: 19 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 19 years. Prior to joi
Slide 42: 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 43: A Second Technology Bubble? We Think Not
A Second Technology Bubble? We Think Not Technology Company Market Value as % of S&P500: 1999 – Present1 Select valuations at highs: then and now 2 Investment into VC backed companies: 1995 – present3 Number of technology IPOs by year4 1. Source: KPCB Internet Trends, April 2014. 2. Source: The Soci
Slide 44: 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 non-US investor use only. Please refer to the Important Information at the end of this presentation. 44
Slide 45: 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 46: 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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