Polar Capital Technology Trust PLC · LSE:PCT
Polar Capital Technology Trust — FY2017 Earnings Presentation
56 slides from Polar Capital Technology Trust's earnings presentation, Jul 11, 2017
Slide 1: Polar Capital Technology Trust Full-year results presentation
Polar Capital Technology Trust Full-year results presentation 11 July 2017 For non-US investor use only. Please refer to the Important Information at the end of this presentation. 1
Slide 2: Results As At 30 April 2017
Results As At 30 April 2017 Year ended Year ended Change 30/04/16 30/04/17 (y/y) Net Assets £801,307,000 £1,252,525,000 +56.3% NAV per ordinary share 605.51p 945.39p +56.1% Price per ordinary share 566.00p 947.00p +67.3% Benchmark Change +53.4% Ordinary shares in issue 132,336,159 132,487,000 + 0.1%
Slide 3: PCT As At 30 June 2017
PCT As At 30 June 2017 Year ended Year ended Change As at 30/04/16 30/04/17 (y/y) 30/06/17 Net Assets £801,307,000 £1,252,525,000 +56.3% £1,309,031,500 NAV per ordinary share 605.51p 945.39p +56.1% 986.00p Price per ordinary share 566.00p 947.00p +67.3% 969.00p Benchmark Change +53.4% Ordinary share
Slide 4: Full Year Review
Full Year Review DJ World Technology vs. FTSE World TR since Apr 2016 • Global equities (FTSE World + 30.7%) enjoyed a banner year due to the combination of earnings growth and ongoing valuation expansion, particularly post the US Presidential elections. • Once again, Sterling weakness (-12%/- 7%/-8
Slide 5: Full Year Review
Full Year Review US technology small caps vs. large caps since Apr 2016 • Small-cap US technology stocks modestly outperformed during the year (c. 2%) due to Trump-related strength that largely unwound during the final third of the year. • NAV performance (+56.1%) exceeded the benchmark by 2.7%. • N
Slide 6: Style Headwinds Abating
Style Headwinds Abating US technology small caps vs. large caps: 2010 - Present Source: Bloomberg, 5 July 2017 For non-US investor use only. Please refer to the Important Information at the end of this presentation. 6
Slide 7: Technology: PE Expansion Inline With Market
Technology: PE Expansion Inline With Market Absolute sector valuation (PE): Relative sector valuation (PE): Compelling vs. history (1992 – present) At / around market level – with superior balance sheet Source: Ned Davis, 30 June 2017. Past performance is not indicative or a guarantee of future retu
Slide 8: Undemanding 'Next-Generation' Valuations
Undemanding ‘Next-Generation’ Valuations Internet valuation: Software as a Service (SaaS) valuation: EV / forward 12 month EV/EBITDA levels1 EV / forward 12 month revenue multiples2 Source: 1. Goldman Sachs, June 2017. 2. Pacific Crest, June 2017. Past performance is not indicative or a guarantee of
Slide 9: Undemanding 'Next-Generation' Valuations
Undemanding ‘Next-Generation’ 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 LEGACY CLOUD Source: 1. Factset, June 2017. 2. Merill Lynch, June 2017.
Slide 10: Revisiting Highs (But This Time With Earnings)
Revisiting Highs (But This Time With Earnings) PCT share price performance (1997 – present) June 2017 S&P Tech earnings: $37.48 PE: 25.1x March 2000 S&P Tech earnings: $13.09 PE: 70x PCT in Sterling PCT in US Dollars Source: Bloomberg, June 2017; annotations: NDR, Trailing 12 months EPS, June 2017.
Slide 11: The Internet: c. 2000 vs Today
The Internet c. 2000 Today 10x 11bn >500x 613x 1.1bn users devices faster traffic websites Computing: The cost of 1m transistors Storage: The cost of gigabyte of data Bandwidth: The cost of 1,000Mbps Source:10x more users: 3.675bn in Sept 16 vs. 361m Dec 2000 (IWS) 17m websites in 2000, 1.14bn at ti
Slide 12: The Internet: Smartphone installed base
The Internet c. 2000 Today 10x 11bn >500x 613x 1.1bn users devices faster traffic websites Smartphone installed base: 2008 – 2017E Source: 10x more users: 3.675bn in Sept 16 vs. 361m Dec 2000 (IWS) 17m websites in 2000, 1.14bn at time of writing (http://www.internetlivestats.com/total-number-of-webs
Slide 13: The Internet: IT workloads in public clouds
The Internet c. 2000 Today 10x 11bn >500x 613x 1.1bn users devices faster traffic websites 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: 10x more users: 3.675bn in Sept 16 vs. 361m D
Slide 14: The Internet: Data growth
The Internet c. 2000 Today 10x 11bn >500x 613x 1.1bn users devices faster traffic websites Data Smartphone growth (Zb): installed 2005 base: – 2019E 2008 – 2017E Source: United Nations Economic Commission for Europe http://www.nojitter.com/post/240170228/the-network-impact-of-big-data. It should not
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. For non-US investor use only. Please refer to the Important Information at the end of this presentation. 16
Slide 17: The Information Age
The Information Age Number of annual Google searches (bn) Source: Polar Capital, Business Insider 2013. 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 Capita
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 Century
Slide 19: 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 20: 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 21: 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 22: Enterprise Computing Becoming Anachronistic
Enterprise Computing Becoming Anachronistic IT spending: IT spending: Contraction in IT spending during downturn1 Information processing equipment as % of GDP (1945-present)2 Source: 1. Goldman Sachs, August 2014. 2. Ned Davis Research, 31 March 2017. Past performance is not indicative or a guarante
Slide 23: 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 24: 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 25: …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 26: Diminished Value Of Incumbency & M&A
Diminished Value Of Incumbency M&A Technology M&A since 19951 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 27: Core Investment Themes
Core Investment Themes eCommerce eCommerce worth $342bn in the US2 and $467bn in China4 last year Penetration just 9% / 8% / 11% in US2 / Europe3 / China5 Number of SKUs Logistics + Ecosystem Digital Advertising / Marketing Internet advertising worth $180bn this year6, Social ads ~16% only penetrat
Slide 28: Core Investment Themes
Core Investment Themes Software As A Service Usage based pricing disrupting $150bn2 maintenance market As penetration rises (~27% today2 ) expect more strategic M&A by incumbents SMB adoption / TAM expansion Enterprise / ‘rip and replace’ Gaming $100bn gaming market5 c. 3x > movie box office6, Mobi
Slide 29: Digital Advertising / Marketing
Digital Advertising / Marketing • Global online advertising expected to reach $195bn in 2016, c. 20% of total advertising spend1 • Paid Search and Social Media markets expected to grow 16% and 33% respectively in 20172 • Size matters: US market dominated by Alphabet and Facebook, who combined captur
Slide 30: eCommerce
eCommerce • eCommerce growth continues unabated and is forecast to reach $1,9tr in 2016, representing c. 8.7% of total retail sales1 • Mobile becoming an integral part of the shopping experience, enabling greater volumes and new use cases (eg. Uber) • Improvements in payments / delivery continue to
Slide 31: Software As A Service (SaaS)
Software As A Service (SaaS) • 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 $164bn opportunity by 2022, c. 30% penetrated today1 • Recent acceleration in M&A supportive
Slide 32: Gaming
Gaming • Video game industry worth $100bn in 2016 $118bn by 2019, 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 distribution (full game
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: Robotics / Automation
Robotics / Automation • 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
Slide 35: Emerging Themes
Emerging Themes Source: Gartner, August 2016. For non-US investor use only. Please refer to the Important Information at the end of this presentation. 35
Slide 36: Voice As A Computing Interface
Voice As A Computing Interface • Human 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 recogni
Slide 37: 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 38: Augmented / Virtual Reality (AR / VR)
Augmented / Virtual Reality (AR / VR) • Nascent today, but massive LT opportunity (TAM = $80bn by 20251) • Technology driven by smartphone / display / sensor advances • Gaming primary market today, but additional applications include live events (sports / concerts) patient monitoring, real estate an
Slide 39: eSports
eSports • Esports = Competitive gaming as a spectator sport • Social media has grown eSports viewership making professional leagues with full time players / teams possible – 148m enthusiasts and a further 144m occasional viewers2 – 40% of eSports viewers do not play the games themselves3 – Twitch re
Slide 40: Digital Payments / Fintech
Digital 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
Slide 41: Internet Of Things (IoT)
Internet Of Things (IoT) • The Internet of Things (IoT)1 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 • Likely to prove over-h
Slide 42: Artificial Intelligence
Artificial Intelligence • What is Artificial Intelligence (AI)? Computers telling humans how to act by learning from data w/o being programmed explicitly • Massive market opportunity: $3.6bn (2016) $36bn (2020) $127bn (2025)1 [combination of hardware / software / services] • Why now? i) vast dat
Slide 43: PCT Positioning
PCT Positioning Sector exposure (%) Market cap exposure (%) Software 25.7% Internet Software & Services 25.6% Large Cap (>$10bn) 70.1% Semiconductors & Semiconductor Equipment 14.8% Mid Cap (>$1bn - $10bn) 26.3% Technology Hardware, Storage & Peripherals 11.7% Electronic Equipment, Instruments & Com
Slide 44: PCT Positioning
PCT Positioning Largest overweights Largest underweights Market cap exposure versus benchmark1 8x8 Alphabet Activision Blizzard Analog Devices Advanced Micro Devices* Apple Amazon Baidu Large-cap -16.6% Applied Materials Broadcom Axon Enterprise Canon Inc CyberArk Software Cisco Systems Dolby Labora
Slide 45: PCT Positioning: Thematic breakdown
PCT Positioning Thematic breakdown1,2 Thematic breakdown relative to benchmark (%)1,2 15.0 Legacy 8% 10.0 Internet 26% 5.0 Semiconductors 16% 0.0 -5.0 Smartphones 9% -10.0 Medical Technology Cloud: applications 1% 14% -15.0 Electric Vehicles Apple 1% 7% -20.0 Solar 0% -25.0 Emerging Cloud: infrastru
Slide 46: PCT Positioning
PCT Positioning Index Index ex PCT1 Top 100 Apple Sales growth 2017 – PCT vs. benchmark2 45.0 PE (Median) CY 25.9 18.4 18.4 NY 22.5 16.7 16.7 Earnings growth (Median) CY 17.1 13.0 13.9 40.0 NY 16.3 11.3 11.3 EV/Sales (Mean) CY 5.3 4.4 4.4 35.0 NY 4.5 3.9 3.9 EV/Sales (Median) CY 4.9 4.0 4.1 30.0 NY
Slide 47: Appendix
Appendix For non-US investor use only. Please refer to the Important Information at the end of this presentation. 47
Slide 48: 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$3.1bn under management • Six dedicated technology specialists – strong multi-cycle track record Global Technology Fund Polar Capital Technology Trust Fund
Slide 49: 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 50: Thematic Investing: Hype vs. Reality
Thematic Investing: Hype vs. Reality Polar Capital Technology Team Early stage Searching for revenue growth and investors cash-flow inflection Index / ETF R&D High growth Low growth No growth negative OM% expanding OM% stable OM% uncertain / declining OM% Cognitive Expert Advisors) Machine Learning
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: 10 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 s
Slide 53: New Cycles Challenge The Value Of Incumbency
New Cycles Challenge The Value Of Incumbency Inflation adjusted UK holiday expenditure: 1951-1996 overseas domestic Source: seasidehistory.co.uk. For non-US investor use only. Please refer to the Important Information at the end of this presentation. 53
Slide 54: Hyper-Personalisation (In The Real World)
Hyper-Personalisation (In The Real World) An extra large, wet, double-shot Coffee caramel macchiato (and WiFi) £1.00 £4.00 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
Slide 55: 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 56: 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
Polar Capital Technology Trust — FY2017 Earnings Presentation on 6ix