City of London has released its annual results for 2018. As headline figures were given in the July trading statement, there are no big surprises in these results. FUM grew 9.5% in US Dollar terms over the year to $5.1bn. With Sterling strengthening relative to the US Dollar and lower fee margins, revenue growth was a little behind this at 8.4%. Total expenses grew at 8.2%, giving a net 8.9% growth in operating profit to £12.5m. EPS growth was 7.0%, lower than the 10% increase in earnings due to fewer shares being held by employee benefits schemes.
City of London usually has excellent cash conversion. The 2018 figure of 120% was boosted by changes in working capital, notably a £1.4m increase in trade payables. The year-end cash balance of £19.7m is more than 40% up on a year ago, with suggestions that some might be returned to shareholders.
The coming year is going to see significant changes. In early 2019, Tom Griffith, who is currently Deputy CEO, will become Group CEO in advance of Barry Olliff’s retiral at the year end. David Cardale will also be stepping down as Chairman, to be replaced by Barry Aling.
The prospective P/E of 10.3x is at a significant discount to the peer group. The historical yield of 6.3% is attractive and should, at the very least, provide support for the shares in the current markets.
Although emerging markets can be volatile, City of London has proved to be more robust than some other EM fund managers, aided by its good performance and strong client servicing. Further EM volatility could increase the risk of such outflows, however.
Having shown robust performance in challenging market conditions, City of London is now reaping the benefits in a more supportive environment. The valuation remains reasonable. FY2017 and FY2018 both saw dividend increases and, unless there is significant market disruption, more should follow in the next few years.