CLIG

29 January 2025
By Maynard Paton

FY 2024 results summary for City of London Investment (CLIG):

• Another very subdued performance, showing revenue up 1%, profit down 1% and the annual dividend unchanged for the third consecutive FY after client withdrawals of $320m left average funds under management (FuM) just 3% higher.

• “Constructive meetings” continue with 31.5% shareholder George Karpus, who now carries “high hopes and high expectations” for CLIG — despite the group failing to achieve its sole KPI after client-fee rates dropped 3bps while salaries climbed an average 6%.

• Long-term client CAGRs of just 5-7% may reflect the inherent limitations of CLIG “exploiting the discount volatility” of UK investment trusts, and raises awkward comparisons to cash/bonds, the S&P 500 and sector activist Saba Capital.

• While new clients remain elusive, plans to reduce expenses by $2.5m — albeit mostly through non-staff costs — alongside a stronger USD should help sustain this FY’s barely covered GBP dividend.

• The subsequent H1 2025 witnessing further client withdrawals of $564m reinforces CLIG’s ‘value trap’ credentials, underlined by a share price that is back to 2007 levels and currently paying a 9% yield. I continue to hold.

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10 July 2024
By Maynard Paton

H1 2024 results summary for City of London Investment (CLIG):

• A subdued performance due to ongoing market “headwinds”, with funds under management (FuM) and revenue up 2%, profit down 5% and the dividend kept at 11p per share for the fourth consecutive H1. 

• CLIG blamed further FuM withdrawals of $294m on higher deposit rates and appealing index trackers, although the follow-up Q3 statement reported a bumper $224m inflow as clients reappraised the group’s “compelling” portfolio valuations. 

• A “strategy of engagement” with unhappy major shareholder George Karpus has led to welcome cost cuts, yet the staff profit-share continues to edge higher and doubts persist about whether CLIG is run for the benefit of employees instead of shareholders.

• Other questions from this H1 concern the effectiveness of the salesforce, the reduced disclosure on fee rates, the necessity of a main-market listing, the revised testing for goodwill impairment and the failure to meet the group’s sole KPI.

• While CLIG’s own projections point to earnings that just about support the 33p dividend and 9% yield, publishing USD accounts but declaring GBP dividends may confuse the 1.2x payout-cover policy. I recently bought more and continue to hold.

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19 December 2023
By Maynard Paton

AGM summary for City of London Investment (CLIG):

• CLIG’s largest shareholder George Karpus voted against the group’s non-execs at the AGM and declared “this board should be replaced with a seasoned group of directors that understand the enormous potential of CLIG“.

• My subsequent conversation with Mr Karpus revealed a somewhat alarming lack of board action following reduced funds under management, dwindling fee rates and a dividend he believes may become “questionable“.

• “They are not client driven” was how Mr Karpus summarised the absence of significant new mandates. Greater cross-selling between group divisions CLIM and KIM was still required, too.

• Mr Karpus explained how a corporate cash-management service could lead to “tremendous opportunities” that might add an extra £1b-plus to CLIG’s funds under management during the next five years.

• Mr Karpus also expressed frank views about the group’s approach to corporate governance, its use of consultants, the over-exposure to Russian shares and employees still working from home.

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15 December 2023
By Maynard Paton

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

• Ongoing market “headwinds” caused average funds under management (FuM) to decline 12% to $9.2b, which led to revenue dropping 16% and profit diving 29%.

• New USD reporting may expose CLIG’s prior progress benefitting from a weaker GBP, with the GBP dividend unchanged since FY 2021 versus the USD equivalent down 11%.

• Significant new clients remain very elusive, with FuM outflows of $357m during this FY prompted by higher deposits rates and CLIM funds returning 3% (or less) five-year CAGRs.

• The profit-share proportion increasing from 24% to 26% during a difficult FY raises further questions about employee pay and the likelihood of additional pressure on profit margins, earnings and ultimately the dividend. 

• While CLIG’s own projections point to earnings of 34p per share that just about support the 33p payout and 10% yield, achieving the group’s total-return KPI to FY 2024 is looking increasingly uncertain. I continue to hold.

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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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01 August 2018
By Maynard Paton

Update on City of London Investment (CLIG).

Event: Trading update and shareholder presentation/summary results for the year ending 30 June 2018 published 17 July 2018.

Summary: Bumper first-half figures and subsequent monthly updates had already ensured the fund manager’s summary annual results would be positive. However, the second half did witness funds under management decline and the group’s own projections for the coming year have now been reduced. In addition, client fees have been cut once again while the main emerging-market strategy continues to underperform. I still hope that, one day, this cash-rich, high-margin business can attract meaningful new mandates to spark a share-price re-rating.  Until then, a 6.8% income remains available. I continue to hold.

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