City of London has announced a trading statement for FY 2017. Over the year , funds under management grew to $4.7bn, a 17% increase over a year ago. This lagged the increase in the MSCI Emerging Markets TR Index of 24%. Fund performance was generally good, with only the Frontier assets lagging the benchmark. As indicated in earlier statements, the slower growth in assets was due to redemptions with net outflows over the year of $306m in Emerging Market, offset slightly by net inflows of c$26m into Diversification strategies.
City of London expects that pre-tax profits for the year will be £11.6m. Profit after tax will be approximately £9.1m, with the tax paid being reduced by a one-off refund of prior years’ US state taxes of £0.4m. Basic eps will be 36.9p and the diluted figure is 36.7p.
The biggest news for many investors will be the increase in the dividend. As per our forecasts, the final dividend has been increased by 1p to 17p, giving a full year total of 25p: this is the first increase since 2012. Cover for the year is a very healthy 1.46 times.
The prospective 2018 P/E of 10.3 times is at a significant discount to the peer group. The current yield of 5.9% is very attractive and should at the very least provide support for the shares in the current volatile markets.
Although Emerging Markets can be volatile, City of London has proved to be more robust than some other emerging market fund managers, aided by its good performance and strong client servicing. Further EM volatility may increase the risk of such outflows however.
Having shown a robust performance in challenging market conditions, City of London is now reaping the benefits in a more supportive environment. The valuation remains reasonable. With dividend cover having returned to a comfortable position, investors can start thinking about future increases.