# City of London Investment Group: Positive markets offset by revenue margins

- Link: https://www.directorstalkinterviews.com/city-of-london-investment-group-positive-markets-offset-by-revenue-margins/4121117616
- Published: 2023-05-02T07:35:18+01:00
- Author: Amilia Stone

**City of London Investment Group plc** (LON:CLIG) has announced its trading update
results for 3Q’23. The headline figures are positive, with FUM increasing 3%, from
$9.15bn at December 2022 to $9.47bn at the quarter-end. This was underpinned by 
good market performance: the MSCI Emerging Markets TR Index increased by 4.0% and
the MSCI All Country World Index ex US rose by 6.9%. These were slightly offset 
at CLIM by some net outflows. Weak sentiment towards the end of the quarter led 
to widening discounts in closed-ended funds, and, as a consequence, there was some
slight underperformance across the strategies.

 * **Operations:** The ongoing decline in City of London Investment Group’s revenue
   margin was stronger this quarter, as it reduced from 73bps to 71bps. Fixed costs
   also increased, from £1.9m to £2.0m, and the run-rate operating profit before
   profit share declined to £2.5m per month.
 * **Estimates**: Despite the increase in FUM, the reduced revenue margin has led
   to net downgrades to our estimates. We have lowered our underlying 2023E EPS 
   by 2%, to 33.7p, while our underlying 2024E EPS has decreased by 5%, to 33.9p,
   and our 2025E EPS has also been lowered by 5%, to 35.9p.
 * **Valuation:** After the recent performance, the 2024E P/E of 16.9x is roughly
   in line with the peer group. The 2024E dividend yield of 8.7% is attractive, 
   in our view, and should, at the very least, provide support for the shares in
   the current markets.
 * **Risks:** Although City of London has reduced its relative emerging markets 
   exposure, it is still 39% of assets. It has proved to be more robust than some
   other fund managers, aided by its good performance and strong client servicing.
   Market volatility remains a risk, although increasing diversification is also
   mitigating this.
 * **Investment summary:** Having maintained good long-term investment performance
   and operational control, City of London Investment Group is well-placed to grow
   organically. We believe the valuation remains reasonable. Now that the Karpus
   transaction has settled down, the prospects for future dividend increases may
   be more dependent on markets and the ability to attract new business.

[DOWNLOAD THE FULL REPORT](https://hardmanandco.com/research/corporate-research/positive-markets-offset-by-revenue-margins/?dm_i=49CL,1IFQ6,RIBDG,715JI,1#report-download)

Share on: