The 1Q trading update from City of London Investment Group Plc (LON:CLIG), a leading specialist asset management group focused on emerging markets and closed-end funds, reveals:
- 1Q rise of 6% in Fund under Management to US$5.0bn (£3.7 billion) compared with the MSCI EM T/R Index which rose by 8% and the MSCI World T/R index which rose 5% over the same period;
- Rebalancing has result in “some redemption requests but, by way of offset, [CLIG] has a robust pipeline of potential business”;
- Management estimates the 1Q18 post-tax profit will be approximately £2.5m (1Q17 was £2.3m including a £0.2m unrealised profit on seed investment).
Commentary on current operations provides the following guidance: “The Group’s income currently accrues at a weighted average rate of approximately 84 basis points of FuM, net of third party commissions. “Fixed” costs are c. £1.0 million per month, and accordingly the current run-rate for operating profit, before profit-share of 30% and an estimated EIP charge of 2%, is approximately £1.6 million per month based upon current FuM and a US$/£ exchange rate of US$1.34 to £1 as at 30th September 2017.”
The statement reminds investors that the final DPS of 17p is “subject to approval at the AGM on 23 October” and “The Group will be hosting an investor afternoon at the London Stock Exchange on 23rd October 2017 from 2pm for investors, analysts and any other interested parties”.
Zeus view
With 1Q profit after tax of approximately £2.5m, we feel comfortable forecasting FY18e PAT of £9.9m. We leave our forecast profit, EPS and DPS for FY18e and FY19e unchanged.
Valuation
CLIG shares at 430p are cum 17p final DPS (4.0% yield on the final dividend alone). On 12 October, when the shares go ex this 17p dividend, the prospective yield should rise to over 6.5% and the FY18e PER falls to 10.6x.
Over the past year CLIG shares have generated a total return of 18.7%: this is 5.9% above the FT All Share, and 0.5% above MXEF-£.
