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City of London Investment Group Plc

City of London Investment Group 13.5p special DPS

What’s new. City of London Investment Group (LON:CLIG) interims released yesterday are precisely in line with the update given on 16 January, except that it revealed:

Group FUM rose 9.7% in January 2019 to US$5.1bn: with Sterling strengthening from $1.28/£1 to $1.30/£1, Group FUM rose circa 8% to £3.9bn.

9.0p interim DPS (1H18 interim DPS: 9.0p) will be accompanied by a 13.5p special DPS: both dividends will be paid on 22 March 2019.
The interims confirmed the following, which were included in the Jan 2019 update:

In 1H to Dec 2018, FuM fell 9.4% to US$4,625m, with the MXEF Index down 9.7%; Year-on-Year FUM fell 12.5%, while the MXEF Index fell 16.6%;

1H flows were $42m negative: $136m of net inflows to the Developed and Opportunistic Value strategies (1Q $124m; 2Q $12m), and $157m net outflow from Emerging Market (1Q $95m; 2Q $62m) and $21m of net outflow from Frontier (1Q $21m; 2Q none) strategies.

1H investment performance was negative: the statement echoes the 1Q statement which referred to “underlying close-end fund manager underperformance” and “widening discounts.

Unaudited 1H PBT of £5.2m is 21% below 1H18 PBT: £6.6m. The run rate for operating profit before profit share of 30% and estimated EIP charge of 5% is now approximately £1.2m per month (1Q19: £1.4m a month);

The statement reminds readers that despite “recent headwinds faced by our active investment approach … each of our key strategies continue to rank in the 1st quartile within their respective peer groups over the past five year period and in the 1st or 2nd quartile over the past three year period ending December 2018.”

Zeus view. We maintain our forecasts, which we adjusted on 16 January 2019.
At 31 December 2018, the group had £18.7m (70p per share) of net cash. We expect the interim and special dividends to cost £5.7m in total. We agree with the Chairman, who observes that the payment of the Special dividend “represents a fair balance between the need to reward shareholders while maintaining sufficient reserves to capitalise on any opportunities that may raise.”

Valuation. CLIG shares at 400p are trading cum 22.5p and go “ex div” on 8 March 2019. Ex div, CLIG is trading on a 7.2% dividend yield and PER of under 10x