City of London Investment Group LON:CLIG
Today’s trading update gives a solid set of figures for the full year despite difficult market conditions in Q4. Profit after tax came in at £6.5m and, as expected, an unchanged full year dividend of 24p is once again covered by earnings.
Emerging equity markets have been weak since the last update in April, but a combination of new business and good performance has kept funds under management at $4.2bn. Over the financial year as a whole FUM have grown 8% in US Dollars against a fall of 5% in the MSCI Emerging Markets Index supported to new business and outperformance.
There is mixed news on new business. The full year inflows of $477m to emerging markets and $255m to new strategies are pretty much in line with targets. Unfortunately emerging market outflows of $437m mean net inflows of only $40m in that area.
A key issue for investors is the return to dividend cover for the full year. Profit after tax was £6.49m, slightly behind our estimates due to weak markets and a slight strengthening of sterling since April. The dividend was kept unchanged for the full year and is covered 1.1 times by earnings.
Outlook
Investors will know that this is not an easy time for emerging markets, with the Greek debt crisis and Chinese stock market making big headlines just now. The global economy continues to recovery slowly and both India and China are taking positive steps to support their economies. So investors know conditions will get better, even if no-one can be sure of exactly when.
Nevertheless this is having an effect on investors and currently there are less opportunities than usual for City of London to win new emerging market mandates. We are sure that will improve, but given the uncertainty on timing the company’s decision to reduce its new business target in FY2016 to $250m from $500m seems a sensible move.
Diversifying its products has been a priority for the company over the last couple of years and it has made good progress. The net inflows of £235m ($255m new business less $20m outflows) has helped to raise the proportion of assets in new areas to 8.5% from 2% a year ago. We expect further progress this year, and in the short term the prospects for new business are probably stronger in this area than emerging markets. Given that a revised annual target of $250m looks a little conservative.
Fund performance remains good, with roughly 2% of the FUM gain relative to the market coming from that source and first or second quartile results so far in 2015. This gives us confidence that City of London can continue to win mandates when they come available.
You can download the full City of London Investment Group Report by Hardman & Co free here: CLIG Report 07-2015 v1
