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City of London Investment Group plc

City of London Investment Group Plc IMS prompts rise in forecasts

City of London Investment Group Plc (LON:CLIG) has released an Interim Management Statement for the 3 months to 31 March 2017, this morning. The key points include:

* Total funds under management (FuM) 31 March 2016 of $4.4 bn (£3.5 bn);
8% rise since 31 December 2016 when FuM was $4.1 bn (£3.3 bn), over this 3-month period the MSCI Emerging Markets Index (MXEF) rose 11% to 960.
* Investment performance improved significantly during the quarter with over 90% of assets outperforming relevant benchmarks YTD.
* In 3Q net redemptions totalled US$140m, but CLIG’s outlook is encouraging with improved investment performance and active pipeline of over $350m.
* Monthly “run-rate” for operating profit, before profit-share rising 50% YoY to £1.5m per month (2Q17: £1.4m; 3Q16: £1.0m) based on current FuM.
In 2017, the US$/£ exchange rate traded within the range 1.20 and 1.27; on 31 March 2017 was 1.25 (on 31 March 2016:1.44).

Zeus view
With MXEF index at 961 (8.0% above 890, the assumption underpinning Zeus’ previous forecasts), we now increase our forecasts for FY(Jun)17e and subsequent years. Our forecasts are now based on 960 and no market movements.

Changes to our forecasts in summary, we increase:

* Our FY(June)17e total income (i.e. revenue) estimate by 3.0% to £32.8m and for FY18e by 3.7% to £36.0m;
* Our FY17e PBT by 5.8% to £12.2m and FY18e PBT by 7.0% to £13.7m;
* Our FY17e EPS by 5.8% to 36.0p and FY18e EPS by 6.2% to 40.3p.
With emerging markets strengthening and dividend cover over historic DPS of 24p rising to 1.50x and 1.74x, an increase in the final DPS appears increasingly likely.

Valuation
In 2017 City of London Investment Group Plc shares have risen 12.4% to 385p and paid an 8p interim DPS. Rising net cash and dividend cover support dividend increase. If the DPS for FY(Jun)18e remained at 24p CLIG shares would yield 6.2%; if the DPS rises 3p to 27p (forecast cover of 1.5x) the dividend yield would rise to 7.0%.

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Disclaimer: Statements in this article should not be considered investment advice, which is best sought directly from a qualified professional.