City of London issued a trading statement this morning about their first quarter performance. Funds under management were $3.6bn as of the end of September. This is down on the $4.2bn as of the end of June, but slightly ahead of the last figure given with the annual results of $3.5bn. Profitability in the first quarter was £1.2m after tax. As well as weak markets weighing on fees, they have had an adverse effect on the company’s seed investment holdings, which has led to an unrealised loss of £0.2m.
The company indicates that the pipeline of potential mandates is still good, with $750m across all its main product areas. It is expected that this will give net gains of at least $250m over the next 6-9 months. We’d suggest in the current market environment timing will inevitably have some uncertainty.
Overall costs overall were in line with expectations at £0.8m per month before profit share. City of London has shown in the past it can cut the fixed cost base when markets are challenging, and has indicated that it is about to do so again.
The shares have gone ex-dividend today. The prospective P/E of 15.0 times is a discount to the peer group. The yield of 7.2% 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 sorts of outflows that some other emerging market fund managers have, aided by its good performance and strong client servicing. Further EM volatility may increase that risk.
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 £0.4m gap that current market levels imply.