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City of London Investment Group "rise in FUM in January suggests upside to FY20 forecasts" says Zeus Capital

What’s new: City of London Investment Group (LON:CLIG) has published its interim results for the 6 months to 31 December 2019, which are in line with the detailed trading update released on 14 January: 

·         Good NAV performance and narrowing discounts enabled its Emerging Market, International Developed and Opportunistic Value strategies to outperform.

·         Revenue of £17.3m, PBT of £6.3m and attributable profit of £5.0m.

In January 2020, with the Emerging Market Index down 4.7%, CLIG’s Funds Under Management (“FUM”) fell only 4.0% to US$5.8bn; with Sterling weakening 1.7% to US$1.30, CLIG’s FUM in Sterling was £4.4bn. 

We expect management to release a 3Q trading update on 21 April.

Zeus View: In this note we analyse the interim results (Exhibit 9), nudge up our FY(Jun)20E revenue forecast and set forecasts for FY(Jun)22E based on:

·         Financial markets and exchange rates remaining at 1 January 2020 levels (i.e. 1% above current levels).

·         Annual net inflows of US$200m p.a (i.e. annual FUM growth of 3%).

We note that the rise in FUM in January 2020 suggests upside to our FY(Jun)20E forecast and consequently to our FY(Jun)21E & FY(Jun)22E forecasts.

Valuation: Over the past decade City of London Investment Group 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.

CLIG shares trading at 462p cum 10p interim dividend (ex date: 5 March), offer shareholders prospects of double-digit returns based on sustainable dividends, steady FUM growth, and an increase in rating from 11x to 13x.

Even at 500p (8% above its current price), CLIG’s PER multiple of 13x would be less than the equity market and its dividend yield an attractive 5.5%.

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