What’s new: The trading update for the 6 months to 31 December 2019 released this morning reveals:
- City of London Investment Group’s Funds Under Management (“FUM”) rose 11.6% to US$6,014m; Sterling strengthened 3.9% against the US dollar to £1 = US$1.32 and Emerging Market Index (MXEF) rose 5.7% to 1,115.
- CLIG’s Emerging Market, International Developed and Opportunistic Value strategies outperformed with good NAV performance and narrowing discounts.
- US$182m of net inflows in the past 6 months: US$272m net inflows to Developed strategies, US$20m to Opportunistic Value funds and US$118m net outflows from Emerging Market funds: notifications of circa US$200m of net inflows expected to fund over the next quarter.
- Estimate of 1H PBT of £6.3m (21.2% up on 6m to Dec 2018: £5.2m).
- Interim DPS will be increased by 1p to 10p.
Interim results will be published on Monday 17 February.
Zeus View: These interims show the success of CLIG’s Diversification strategies (i.e. non-Emerging Market funds). Over the past two years, its Diversification FUM increased 150% and its contribution to group FUM risen from 13% to 26%.
We take this opportunity to refine our forecasts using the following assumptions:
- Financial markets and exchange rates remain at December 2019 levels.
- The 5% EIP charge assumed for FY20E is not repeated in FY21E.
- DPS nudged up 1p reflecting the interim DPS and strong net cash position.
Consequently, we leave our FY(Jun)20E profit, and EPS forecasts unchanged and nudge up our FY(Jun)21E profit, and EPS forecasts by c 8%.
Valuation: Over the past decade CLIG has delivered its shareholders over 12% pa total return, split 50:50 into capital return and dividend income. Diversification is creating shareholder value, delivering stability and growth in FUM, earnings and in turn valuation multiples.
At 504p (14.5% above its current price), CLIG’s PER multiple of 13.0x would be less than the equity market and its dividend yield an attractive 5.5%.