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City of London Investment Group Plc

City of London Investment Group 1Q trading update

What’s new. City of London Investment Group (LON:CLIG) 1Q trading update released this morning reveals details of Group Funds under Management (FuM) and operating profitability:

In 1Q to 30 Sept, FuM fell 1.9% to US$5,008m, MSCI EM TR Index fell 1.1%; EM products now contribute c 80% and diversification products (i.e. Developed Market, Opportunistic Value and Frontier products) contributed c 20%; Year-on-Year FUM rose 1.0%, while the MSCI EM TR Index fell 0.8%;

1Q flows were neutral: net inflows to the Developed ($98m) and Opportunistic Value ($26m) strategies offset the net outflows from the Emerging Markets ($95m) and Frontier ($21m) strategies.

1Q investment management performance was slightly behind benchmark: Emerging Market and Frontier strategies due to underlying close-end fund manager underperformance; Developed strategy due to widening discounts.

The run rate for operating profit before profit share of 30% and estimated EIP charge of 2% is approximately £1.4m per month (1Q18: £1.6m per month); the unaudited 1Q PAT is £2.2m (1Q18: £2.5m);

The final DPS of 18.0p (2017 final DPS: 17.0p), subject to approval at the AGM will be paid on 30 October 2018; CLIG shares go ex on Thursday 11 October.
CLIG’s Annual General Meeting is on Monday 22 October.

Zeus view. This 1Q is consistent with recent news: the MXEF Index has fallen 20.6% since 26 January 2018; discounts on which closed-end fund trade have been widening; net inflows to CLIG’s Developed and Opportunistic Value strategies have increased the diversification of CLIG business.

We leave our forecasts, which we set in July 2018 and are based on US$:£ exchange rate of 1.3 and average FUM of $5.3bn, unchanged.

Valuation. City of London Investment Group  shares at 405p are cum 18.0p final DPS (4.4% yield on the final DPS alone). CLIG shares go “ex” on Thursday 11 October.
CLIG’s investment process and growing non-Emerging-Market capability supports expectations of continued growth even in flat markets. Compared to market PER of 11x for Emerging Markets and 12.3x for the FT All Share, CLIG PER of 9.7x is attractive. Its forward dividend yield of 7.1% is a clear indication of value