City of London Investment Group plc (LON:CLIG) has announced its trading update for 2Q22. The big news, for most shareholders, will be the announcement of a special dividend of 13.5p per share. While we knew this was a possibility, we did not expect it so soon. The interim dividend has been kept unchanged from the previous year at 11p per share. CLIG highlights its strong cash balance of £24.5m as of 31 December 2021, which is well in excess of both its capital and operational needs. The special dividend will cost £6.8m and still the leave the company with a more-than-adequate cash balance.
- FUM: The CLIM strategies all outperformed mixed markets, while the International strategy saw good net inflows of $265m. While the other strategies saw smaller net outflows, the combined effect was to increase FUM by 2% from $10.9bn to $11.1bn.
- Estimates: The net inflows and positive performance have led to small upgrades to our earnings estimates, with an offset from lower fee rates. Our 2022E underlying EPS has risen 0.2%, to 49.0p, while our 2023E underlying EPS is up 0.6%, to 51.9p.
- Valuation: Despite the recent good performance, the 2022E P/E of 12.6x remains at a discount to the peer group. The 2023E yield of 7.1% is attractive, in our view, and should, at the very least, provide support for the shares in the current markets.
- Risks: Although City of London Investment Group has reduced its relative emerging markets exposure, it is still 43% of assets. It has proved to be more robust than some other fund managers, aided by its good performance and strong client servicing. Market volatility remains a risk, although increasing diversification is also mitigating this.
- Investment summary: Having maintained good investment performance and operational control, City of London Investment Group is well placed to grow organically. The valuation remains reasonable. After special dividends in FY19 and FY22, dividend increases in FY20 and FY21, and with the EPS boost from Karpus, the prospects for future dividend increases look very good.