City of London Investment Group plc (LON:CLIG) results have beaten Zeus expectations at revenue, EPS and DPS. On 14 July CLIG provided an update which revealed $338m of net inflows (6% of opening FUM), outperformance of the Emerging Market and Developed strategies (98% of FuM) and 25% rise in FuM in 4Q to $5.5bn and an indication that the final dividend would be not less than last year. In our opinion, key features of CLIG’s full year results include:
- 4.4% rise in revenue to £33.3m (Zeus forecast: £32.0m);
- 6.1% fall in adj PBT to £10.7m (Zeus forecast: £10.3m), excluding gains/losses on seed investment 9.4% rise to £11.6m (FY19: £10.6m);
- 3.2% rise in adj EPS to 35.3p (Zeus forecast 32.5p);
- 11.1% rise in final DPS to 20.0p (Zeus forecast: 18p) with the total DPS of 30p (Zeus forecast: 28p) is 11.1% above the prior year excluding special DPS.
- Net cash of £14.6m (Zeus forecast: £10.0m)
The acquisition of KMI is expected to complete on 1 October 2020.
Outlook commentary refers to CLIG having “the components of a sound business model, strong balance sheet and committed employees [enabling the Group to] continue to evolve as intended and is well positioned for the year to come.”
Zeus view: CLIG’s results to June 2020 beat our revenue forecast by 4.1% and adj EPS by 8.6% and DPS by 7.1%. Our forecasts overstated the impact market volatility had on average FuM, and consequently revenue, profit and cashflow.
We maintain our forecasts for 2021E and 2022E (see pages 2 to 5), which include the KMI acquisition from 1 October 2020. We draw attention to the following points:
- KMI AuM has risen from US$3.4bn to US$3.6bn at end August 2020;
- CLIM’s FuM has risen 9.1% in 2 months to $6.0bn at end August 2020;
- Sterling rose from US$1.25 = £1 to a high of US$1.33 and is now US$1.28.
In FY22 with a full year from KMI, we see CLIG delivering 47.1p adj EPS and the Group paying a 32p dividend. Our forecasts show CLIG’s net cash of £20m in June 2021 and £30m in June 2022.
Valuation: On our FY21 forecasts, at 398p City of London Investment Group shares trade on only 8.8x current year EPS and offer investors a 7.5% dividend yield. With a full year contribution from KMI in FY22 the PER falls to 8.4x and dividend yield rises to 8.0%.
