City of London has published a trading statement this morning covering 1Q18. As indicated at the time of the release of the annual report, Funds under Management (FUM) have continued to grow and finished the quarter at $5.0bn, compared to $4.7bn at the end of June. Emerging Markets have continued to perform well, though this has continued to lead to redemptions from rebalancing. Over the quarter FUM growth of 6% slightly lagged the MSCI Emerging Markets total return Index figure of 8%, but was ahead of the MSCI World Index rate of 5%. The pipeline is described as ‘robust’.

  • Operations: Revenue, expense and profitability numbers are marginally ahead of expectations. Revenue continues to accrue at 84 basis points of FUM, with FUM a little ahead of expectations. Costs are in line with previous figures.
  • Profits: The run rate operating profitability before profit share and EIP is currently £1.6m per month. This is based on the quarter end exchange rate of 1.34 US$/£. The net result is that the estimated first quarter post-tax profit is £2.5m.
  • Valuation: The prospective P/E of 10.3 times is at a significant discount to the peer group. The historic yield of 5.8% 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. FY17 saw the first dividend increase since FY12 and, unless there is significant market disruption, more should follow in the next few years.