City of London Investment Group delivers a strong dividend and very strong robust earnings stream says Zeus Capital (LON:CLIG)

Dividend payment

City of London Investment Group plc (LON:CLIG) is the topic of conversation when Zeus Capital’s Research Director Robin Savage caught up with DirectorsTalk for an exclusive interview.

Q1: City of London Investment Group has published its interim results for the six months to December 2021, what were the key points we should be aware of?

A1: First of all, they had a detailed trading update on the 19th of January so these interim results have been largely foreshadowed by this detailed trading update which revealed that at the end of 2021, group Funds under Management were $11.1 billion, that was £8.2 billion. That included net inflows in the six months to December of $59 million which in the first quarter was £172 million of net outflows and then strong net inflows in the second quarter of £231 million.

The statement in January also revealed solid relative investment performance across investment strategies, a good active pipeline across all its major products, it also highlighted the income net of third party commissions accruing at £4.9 million. We expect for the full year, the net income to be £5 million a month so it’s line with what we were expecting and overheads were running at £1.6 million and we’d forecast just over £1.6 million a month so we felt at the time that we were not going to change our forecasts and we don’t anymore.

The statement in January revealed a net cash of £24.5 million at the end of December, we now have details of the cashflow which we have included in a report to shareholders. Also, the trading update revealed an 11p interim dividend and 13.5p per share special dividend so all of that was foreshadowed and we’ve now got the detailed interim results which we can see the line by line details which enables me to look  forward to the rest of the year.

Q2: With that in mind, what impact has this had on your forecasts?

A2: We aren’t going to change our numbers but I have been able to look line by line at our forecasts and I feel very conformable that my forecasts for the full year should remain unchanged.

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I think the remarkable thing about the group is the way in which the acquisition of Karpus just over a year ago has essentially stabilised the business to be much more a global fund management business rather than simple an emerging markets business.

Q3: How do you see City of London Investment Group’s valuation?

A3: At £5.20 a share, the shares are trading at just over 11 times the current year earnings, the dividend yield including the special dividend is 9%, if you were to exclude the special dividend, you have a 6.4% dividend yield so a very attractive dividend yield with a strong net cash position. In fact, you probably should think that special dividends may well be a regular feature if there aren’t other things to put their money into.

I suppose the key point about the company is that they have been very predictable over a long period of time, they run a very tight ship with a predictable revenue and profit stream that enables us to forecast the dividend. The major uncertainty is the extent to which the business is able to attract inflows so we do need to see how the pipeline of new business comes through but in terms of a business that delivers strong shareholder returns, it’s got the ability, and has been delivering, a strong dividend stream and very strong robust earnings stream.

So, it’s been able to deliver double-digit shareholder returns over the last twenty years and we expect that to continue.

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