City of London issued a trading update this morning with its figures to the end of 2015. Funds under management were $3.8 billion. This compares with $4.2bn at the start of the year and $3.6bn at the end of the first quarter. Markets have been the main driver of the decline, though this has been offset by good performance and new fund flows. The fall in FUM over the first half was 11%, compared to a decline of 17% in the MSCI Emerging Markets TR Index.
New business acquisition has been going well. As well as the first half inflows, there is another $200m won which will be funded over the next few months. This has been spread across several areas of the business.
The market declines have had a corresponding effect on profits. The first half profit before tax was £3.6m, a decline of 16% on the previous year’s £4.3m. After tax this is below the dividend run rate, and whether cover is restored in 2H2016 is very dependent on market movements.
The prospective P/E of 14.6 times is now at a slight premium to the peer group. The yield of 7.3% is very attractive and should at the very least provide support for the shares in the current volatile markets.
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.
City of London has continued to show robust performance in challenging market conditions. The valuation remains reasonable. Without a market recovery the dividend may be uncovered in 2016, but with over £10m of cash the company can easily cover the gap that current market levels imply.