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City of London Investment Group Plc

City of London Investment Group Plc 1H PBT up 61%; EPS up 68%

Interim results from City of London Investment Group Plc (LON:CLIG), released this morning, are precisely in line with the pre-close update on 17 January, which revealed:

* Total funds under management (FuM) 31 Dec 2016 of $4.1 bn (£3.3 bn);
2.5% rise since 30 June 2016 when FuM was $4.0 bn (£3.0 bn).
* PBT for 1H17e rose 61% to £5.8m (1H16: £3.6m), with a monthly “run-rate” for operating profit, before profit-share of £1.4m per month.
Today’s announcement and interim results reveal:
* FuM on 31 January 2017 was US$4.2bn (£3.3bn).
* 1H17 revenues rose 30% to £15.4m (1H16: £11.8m).
* Diluted EPS rose 68% to 17.5p (1H16: £10.4p).
* December 2016 cash & cash equivalents of £10.5m (Dec 2015: £8.4m).
* An unchanged interim dividend of 8p (ex date 3 March).
The US$/£ exchange rate was 1.47 at 31 December 2015, 1.33 at 30 June 2016, 1.23 on 31 December 2016 and 1.27 on 31 January 2017.

Zeus Capital view
As we expected CLIG’s 1H17 DPS remained unchanged at 8.0p (1H16: 8.0p). As 1H17 Diluted EPS rose 68%, while PBT rose 61%, the results are ahead of our expectations. After increasing our FY(June)17e PBT forecast 2.8% on 17 January, we maintain our forecasts.

Year to date the MSCI emerging market index is up 9.7%. At 946 it is 13.4% above 30 June 2016 of 834, and 6.3% above our forecasts of 890. If markets remain strong, we may need to raise our forecasts.

We will review our forecasts in April when CLIG releases its 3Q trading update.

In the past month City of London Investment Group Plc shares have risen from 350p to 373p (3 month high/low: 375pp; 333p), its historical dividend yield is 6.4%. Its 2017 dividend yield on our forecasts is 6.7%, which is 74% more than the FT All Share yield of 3.7%. A more reasonable 50% premium would set a target dividend yield of 5.55% dividend yield, implying a 455p CLIG target price.

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