First-half results going in the right direction

City of London has announced its interim results for 1H’24. With the main headline figures having being announced in January’s trading statement, the principal interest was in some of the details. FUM of $9.58bn is 2% ahead of the level at 30 June 2023 and 5% ahead of the end of 2022. Gross revenues increased YoY by 2%, whereas, expenses grew 6%, resulting in a slightly lower operating profit of $10.0m. On an underlying basis, profit before tax of $13.3m was a 2% decline over the 1H’23 figure. Underlying EPS showed a similar decline, to 20.4¢, or 16.2p. The interim dividend, as previously announced, is unchanged at 11p.

• Funds: Performance across the first half was variable, which is natural over a short six-month period. While City of London has indicated increased marketing efforts and interest, this has not translated into results yet. We believe that with positive long-term performance and a good value story, it will do so in due course.
• Estimates: Minor changes have led to small upgrades in our estimates. Our 2024E underlying EPS has increased by 0.5% from 42.1¢ to 42.3¢ and our 2025E EPS has increased by 2% from 46.6¢ to 47.8¢. We have introduced a 2026E EPS of 52.6¢.
• Valuation: After the recent performance, the 2025E P/E of 10.1x is a noticeable discount to the peer group. A 2025E dividend yield of 10.6% is well above the market average and should, at the very least, provide support for the shares in the current markets.
• Risks: Although City of London has reduced its relative emerging markets exposure, it is still 37% of assets. It has proved to be more robust than some other fund managers, aided by its good performance and strong client servicing. Market volatility remains a risk, although increasing diversification is also mitigating this.
• Investment summary: Having maintained good long-term investment performance and operational control, City of London is well-placed to grow organically. We believe the valuation remains reasonable. Now that the Karpus transaction has settled down, the prospects for future dividend increases may be more dependent on markets and the ability to attract new business.