City of London Investment Group Plc (LON:CLIG) issued a trading statement for the first quarter of the 2017 financial year. With only a month having passed since the year end results were announced, much of the operational information is as expected but there has been further significant benefit from exchange rate movements. Funds under management at the quarter end were $4.3bn, up from $4.0bn at the end of June but down a little from the previous announcement. The increase was pretty much in line with the movement in the MSCI Emerging Markets Index.
Operations: Although the markets have moved strongly in City of London’s favour this year, it has continued its excellent cost control. Fixed costs remain at around £0.9m per month. Estimated post-tax profit for the first quarter is £2.3m, including £0.1m of unrealised gains.
New business: There was no news on new business in the statement. The company reiterated that the impact of Brexit operationally is likely to be very limited, with significant financial benefits from the weakness of sterling against the US Dollar, which is reflected in the better than expected profits.
Valuation: The prospective P/E of 10.1 times is at a significant discount to the peer group. The yield of 6.5% is very attractive and should at the very least provide support for the shares in the current volatile markets. At current market levels we’d expect dividend cover to be restored in 2017.
Risks: To date, City of London has not experienced the sort of outflows that some other emerging market fund managers have, aided by its good performance and strong client servicing. Further EM volatility may increase the risk of such outflows however.
Investment summary: City of London has continued to show robust performance in challenging market conditions. The valuation remains reasonable. At current FUM and exchange rates, dividend cover will be more than restored in FY2017 adding to investors comfort.
