City of London Investment Group PLC (LON:CLIG) is the topic of conversation when Zeus Capital’s Research Analyst Robin Savage caught up with DirectorsTalk for an exclusive interview
Q1: City of London Investment Group have released a detailed pre-close statement today, how would you sum up that statement?
A1: Well, the full year results to 30th June this year show good growth. You’ve got 10% growth in funds under management, 10% growth in profits before tax which is 3.8% below what we’d been forecasting, reflecting a difficult fourth quarter. There was a 7% rise in earnings per share which is 2.5% below our forecast 8% rise in the full year dividend per share so that’s precisely in line with our expectations.
These results, overall, reflect the movements in the Emerging Markets, equity markets, so recently there’s been a 10% fall which is reflected in the difficult fourth quarter. The MXEF index, which is the best index to look at in my view for Emerging Markets, hit a high of 1273 on 26th January 2018 and it’s now trading at 1070. So, having been well over 1200, it’s now under 1100 and obviously the fall in the markets has had a negative impact.
Overall, these results show the benefit of rising markets, albeit with a difficult fourth quarter, and management exerting strong cost control enabling the Group to deliver earnings and dividend growth.
Q2: So, what do you think the outlook is like for next year?
A2: We have re-based our earnings forecasts, assuming that Emerging Markets index remains at the 1100 level which is 8.3% below our previous forecasts. Consequently, we’ve reduced our profit and earnings per share forecasts by 11% and 12% respectively.
City of London Investment Group has a strong capital position, it’s got over £18 million of net cash, so no debt, and in my view, CLIG can continue to raise its dividends but we have trimmed our dividend per share forecast by 1p or 3.4% to 28p for next year.
Q3: As you pointed out, shares are trading around 400p which are down 10p since April, how do you see City of London Investment Group shares trading over the next few months and years?
A3: First of all, there is a strong correlation between CLIG share price and the MXEF index, there’s a good reason for that which is that over 80% of group revenues are directly linked to Emerging Market, equity market, values. So, equity market goes up, they get more revenue, if it goes down, they get less revenues.
The current share price reflects the current level of Emerging Market index, it does not the 18p final dividend so the yield on the final dividend alone is 4.5%. If you look more broadly, the dividend yield is around about 7%, 7% prospective, 6.8% looking backwards and particularly for those who want to have exposure to Emerging Markets, equity markets, is an excellent company in which to invest.
So, you get the benefits of attractive dividend yield, of earnings growth as long as the markets continue to perform and a very well-controlled business. So, I would say those who want to have some Emerging Market exposure in their equity portfolios, I think it’s an excellent stock to be holding.