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City of London Investment Group Plc

City of London Investment Group PLC 1Q IMS reveals strong trading say Zeus Capital

The City of London Investment Group PLC (LON:CLIG) statement reminds investors that “virtually all CLIM’ income is USD based, fees are sourced from US institutions; over 90% is effectively derived from Emerging Markets and approximately 40% of Group costs are in GBP”.

What’s new
Today’s 1Q trading update reveals very strong trading. Key points include:
* 9% rise in $AuM to $4.3m in 3 months (13.3% rise in £AuM);
* 1Q PAT ex unrealised gain on seed investments has risen to £2.2m (£1.4m);
* at an exchange rate of 1.24 the current run rate of “operating profit before profit share and tax” is c£1.5m/month.
Zeus Capital view
This 1Q statement is ahead of our expectations and reflects the positive impact of current market conditions (both emerging markets & currency markets). If these market conditions continue through the remainder of the financial year, CLIG’s results will exceed our forecasts by more than 10%. However, with 9 months to the end of the year, we leave our forecasts (see exhibits 1 & 2) unchanged.
CLIG’s sensitivity to rising markets and changing exchange rates is clear. Investors can easily make their own estimates based on their own views (see exhibits 1-4). We expect CLIG’s share price to increasingly reflect the positive market conditions as we move closer to its year end.

Interim results in January 2017, and 3Q update in April 2017 will provide sensible opportunities to adjust our forecasts to reflect market conditions.

Valuation
At 385p CLIG shares are cum 16p final DPS which of itself is a 4.2% dividend yield.
Increasing monthly profitability will increase dividend cover and prompt dividend growth. Even with no growth CLIG shares are trading on a yield of 6.2% which is 70% above the FT All Share.
In our opinion a 50% premium, 5.3% dividend yield, and a 455p ex div share price is reasonable. The combination of 70p capital gain and 16p final dividend would deliver a 22.3% return. City of London Investment Group PLC shares go ex 16p final DPS on Thursday 13 October.