Pollen Street PLC (LSE:POLN) offers a “unique proposition” after the merger of the Honeycomb investment trust with its investment manager, according to analysts at Liberum Capital as they initiated coverage with a ‘buy’ rating.
Post completion of the merger at the end of September, Pollen Street is now made up of two main parts, with its house broker describing them as a fast-growing, high-margin private capital fund management business and a cash-generative investment portfolio.
Liberum has determined a sum-of-the-parts (SOTP) valuation of 1,140p for the company, which implies over 45% upside to the current share price, which closed at 778p on Monday.
At the current market price, the fund management business is being valued at six times 2024 forecast earnings.
“This is wrong,” said Liberum analyst Nick Anderson in a note to clients.
“The market underestimates the stability and annuity-like nature of fund management revenues and overestimates the sensitivity to portfolio valuations,” he added, forecasting that Pollen Street's private capital business will grow assets under management (AuM) at a 15% compound annual rate out to 2026.
This AuM growth is “key” Anderson noted, with industry management fees stable over time and the operating leverage from Pollen Street’s scalable platform forecast to deliver at least 50% fund management EBITDA margin in the long term.