With the key figures from the 2015 results having been announced in July, yesterday’s announcement contains no surprises. Earnings were up 27% on the 2014 figure, before allowing that the latter was a 13 month year. The unchanged dividend of 24p is 1.1 covered by earnings and conversion to cash was excellent as always. Margins were good, with the revenue margin decline slower than expected and the benefit of good cost control coming through in a much improved operating margin. The bad news has come after the year end, where weak markets have weighed on funds under management, bringing them down to $3.5bn.
The statement gives no further news on new business flows. We understand that there are signs of bottom fishing in emerging markets from some investors, though it may take signs of stability or recovery to see inflows resume significantly.
Fund performance remains excellent with the fund composites in all of its three main product areas outperforming over the last financial year.
The prospective P/E of 14.6 times is a discount to the peer group. The yield of 7.1% 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 £0.2m gap that current market levels imply.