City of London Investment

01 July 2023
By Maynard Paton

H1 2023 results summary for City of London Investment (CLIG):

• “Choppy” market conditions causing funds under management (FuM) to slide 18% to $9b led to revenue dropping 9% and profit diving 26%.

• Significant new clients remain very elusive, with H1 outflows of $107m negating the inflows enjoyed during FY 2022 and aggregate withdrawals reaching $404m at merger partner KIM.

• Rising staff costs represented 42% of revenue following a 24% profit share, and questions remain as to whether i) employees rank ahead of shareholders, and ii) the total-return KPI really stretches management.

• The follow-up Q3 update admitted fee rates had declined from 73 to 71 basis points, as clients seemingly chip away at charges after perhaps watching the cheaper S&P 500 continue to outrun their CLIG portfolios.

• Reduced FuM, lower fees and greater expenses now point to earnings of 34p per share that just about support the 33p dividend and 7.8% yield. Capital gains meanwhile look dependent entirely on a broad market recovery. I continue to hold.

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21 October 2022
By Maynard Paton

Results summary for City of London Investment (CLIG):

• Rough market conditions causing funds under management (FuM) to fall 17% to $9.2b led to H2 net fee income dropping 5% and H2 profit diving 20%.

• A post-year update showed FuM sliding a further 8% to $8.5b, but also the fourth consecutive quarter of net FuM inflows that may signal clients re-appraising CLIG’s ‘value’ approach.

• Buying SPACs at discounts to cash helped merger partner KIM outperform the original CLIM division with 6% five-year annualised returns versus 3-4%.

• Revenue “100%” denominated in the stronger USD, handy cash conversion plus net funds and investments of £30m counterbalanced an H2 margin squeezed to ‘only’ 42%.

• Near-term earnings could now be running at 36p per share, which should still support the 33p per share dividend and 8%-plus yield at 400p. I continue to hold.

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19 June 2022
By Maynard Paton

Results summary for City of London Investment (CLIG):

• The Karpus merger ensured impressive headline progress, but this H1 performance was almost identical to the preceding H2 as funds under management (FuM) remained at $11b.

• Wishful thinking perhaps, but two consecutive quarters of net FuM inflows following consistent FuM outflows may signal clients re-appraising CLIG’s ‘value’ approach.

• Rough market conditions during the subsequent H2 will test CLIG’s investments, with FuM dropping 13% to below $10b not indicating obvious outperformance.

• A wonderful 49% margin and net cash of £25m funding a welcome £7m special dividend suggest the accounts can survive any further market weakness.

• Although the possible P/E is 11 and the yield tops 7%, the shares have been rated modestly for years as major new clients remain extremely elusive. I continue to hold.

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24 February 2021
By Maynard Paton

Results summary for City of London Investment (CLIG):

• Very buoyant markets alongside the Karpus merger helped funds under management (FuM) reach a record $10.9b and lift the dividend by 10%.

• Client ‘rebalancing’ led to FuM withdrawals and, despite fledgling strategies attracting new money, overall fund flows remain frustratingly low. 

• Recent leadership retirements have not led to any dramatic changes and shareholder information has remained reassuringly comprehensive.

• The Karpus merger has raised the group margin to an astonishing 55%, but future bonus-pool arrangements could reduce such profitability.

• The possible P/E is 11 and near-term yield might top 7%, although the shares have been valued modestly for years and a sustained re-rating remains very elusive. I continue to hold.

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18 September 2020
By Maynard Paton

Results summary for City of London Investment (CLIG):

• Funds under management (FuM) endured a rollercoaster second half, but finished the year up 2% to lift profit by 10% and the dividend by 11%.

• FuM ‘capacity’ has become an issue, and explains CLIG’s limited past progress and probably prompted the upcoming merger. 

• The Karpus deal appears logical, but similar to CLIG the merger partner has struggled to attract new clients.

• The accounts continue to sport high margins, decent cash flow, high equity returns and net cash.

• A potential P/E of 11 and yield of 7.5% seem attractive, although the shares have been rated modestly for years. I continue to hold.

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23 March 2020
By Maynard Paton

Results summary for City of London Investment (CLIG):

• Funds under management rallied to a record level in GBP terms, lifting revenue by 11%, profit by 22% and the dividend by 11%.

• However, the market crash that followed these results has superseded a lot of the statement’s commentary and accounting.

• Profit may now be running almost 40% lower than at the start of the year and may just about cover the 28p per share full-year dividend.

• The accounts continue to sport high margins, decent cash flow and net cash — all of which ought to see the business through the present downturn.

• Although the shares have been rated modestly on a P/E basis for years, the possible yield now tops 9%. I continue to hold.

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26 July 2019
By Maynard Paton

Results summary for City of London Investment (CLIG):

• These 2019 summary figures contained no surprises, as lower funds under management (FUM) throughout the year left revenue down 6% and profit down 16%.

• FUM ironically ended the year at its highest-ever level in GBP terms (£4.2b), as client money once again trickled out of the main emerging-market funds and in to other strategies.

• The overall fee rate paid by clients slid from 80 basis points to 76 basis points.

• The accounts continue to sport high margins, a robust return on equity, decent cash flow and net cash.

• The P/E is approximately 10 and the yield tops 6%, although the shares have traded on a similar rating for years. I continue to hold.

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18 January 2019
By Maynard Paton

Results verdict on City of London Investment (CLIG):

• Monthly updates had already braced shareholders for lower funds under management — which in turn reduced first-half profit by 21%.

• Tough markets have again prompted the fund manager to cut its projections, as fee rates are trimmed and costs creep higher.

• As before, significant new clients are required to bolster earnings and support a decisive share-price re-rating.

• I am hopeful the replacement chief executive might one day re-energise the group’s marketing.

• The accounts remain cash-rich and high-margin, and the shares yield 7.5%. I continue to hold.

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