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City of London published its interim results yesterday morning, covering 1HFY2018. The headline figures were given in January’s trading statement. As of 31 January 2018, FUM had risen to $5.8bn, although we note that the market weakness since then has probably pushed this back to closer to $5.5bn. Cash balances have risen to £15.6m, a 49% increase over the same figure a year ago. A new Deputy CEO has been appointed, with the existing COO Tom Griffith now working alongside Barry Olliff as the latter moves towards retirement at the end of 2019.

  • New business: The pipeline is indicated at being over $400m across all products. In City of London’s financial template, its assumption is $100m of net new assets in Emerging Markets (EM) CEF and $250m in the other areas. In EM, gross new business may be stronger but rebalancing remains a drag.
  • Fund performance: The report gives more detail on the underperformance in EM CEF in the first half. The composite was up 6.1%, compared with benchmarks of 7.4%-7.6%. City of London has identified several factors behind this. We note that the long term track record remains very strong.
  • Valuation: The prospective P/E of 10.2x times is at a significant discount to the peer group. The historical yield of 6.0% is very attractive and should, at the very least, provide support for the shares in the current markets.
  • Risks: 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 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 follow in the next few years.
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