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City of London Investment Group Plc

City of London Investment Group IMS reveals 14% AuM rise YTD

What’s new. City of London Investment Group (LON:CLIG)  3Q update on its Funds under Management (FuM) confirms that while Emerging Market Total Return Index rose 9.9%, CLIG’s FuM rose 13.9% to US$5,268m.
The statement also revealed:

US$153m of net inflows: US$ 45m for Emerging Markets strategy and US$101m for Developed strategy; the Frontier and Opportunistic Value Strategies were essentially flat;

Strategies covering >95% of group FUM outperformed due to narrowing discounts and to a lesser extent, positive NAV performance. Frontier Strategy (under 5% of FUM) underperformed largely due to unfavourable NAV performance;

CLIG has an active pipeline across all major CEF offerings, with increased interest continuing to be seen in the non-Emerging Market CEF strategies (i.e. Developed, Opportunistic Value).

Current run-rate for operating profit per month of £1.5m, before profit-share of 30% and an estimated EIP charge of 5%, based upon current FuM and a US$/£ exchange rate of US$1.3.

Zeus view. We note that the group FuM is currently above our forecast for 30 June 2019. Exhibit 10 shows the shift in Group FuM, analysed by strategy.
Exhibits 6, 8 & 9 show CLIG’s impressive Emerging Markets strategy performance relative to its peers and benchmarks.

We maintain our forecasts (Exhibits 1 & 2), which we last adjusted on 16 January 2019, and which are based on $1.31=£1 and on the MXEF ($) index being circa 1,070 for the next two years. We will review our forecasts again, when CLIG publishes its pre-close trading update on Tuesday 16 July.

Valuation. City of London Investment Group shares at 399p are trading on a prospective dividend yield of 6.8% and PER of under 11.0x. This is inexpensive, particularly for a stock which has no debt, substantial net cash, and a good record of creating and distributing shareholder value.

The close correlation between CLIG share price and the MXEF Index suggests that CLIG’s share price should be trading close to 420p