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City of London has published its full results and Annual Report for FY2017. With the headline figures having already been announced, there are no surprises in the new information. With Emerging Markets performing well, assets under management have grown significantly to $4.7bn at the year end. When combined with beneficial exchange rate movements, profitability has improved significantly, with earnings up 57% to £9.14m. With dividend cover back at a comfortable level, City of London has put a difficult period behind it and is able to move forward from a position of strength.

  • New business flows: Although City of London attracted reasonable new business inflows during the year, these were offset by redemptions. For the Emerging Markets this led to net outflows of $306m, while the diversification products achieved a net inflow of $26m.
  • Cash: Cash conversion as always was excellent and cash balances reached a new high of £13.9m. The company can comfortably fund the increased dividend cost, with scope for further increases in the future unless markets experience another severe dislocation.
  • Valuation: The prospective P/E of 9.7 times is at a significant discount to the peer group. The historic yield of 6.3% is very attractive and should at the very least provide support for the shares in the current volatile markets.
  • Risks: 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.
  • Investment summary: 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 saw the first dividend increase since FY2012, and unless there is significant market disruption more should come in the next few years.
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