Good fund performance and solid results

City of London has announced its full-year results for 2024. As stated in the trading statement, FUM was $10.24bn, a 9% increase over the year. While market performance offset net outflows, there was a significant improvement in the latter in the second half, which bodes well going forward. Underlying profit before tax of $27.2m was a 0.5% increase over 2023’s $27.0m. A higher effective tax rate meant that underlying EPS declined 3% from 43.4¢ to 42.2¢. As previously announced, the final dividend was unchanged, at 22p, making 33p for the year as whole. Cash balances increased, to $33.7m, from $25.9m as of 31 December 2023.

• Funds: Performance in the underlying funds was excellent, with the Emerging Markets strategy being the only major underperformer. Even that saw outperformance in the second half of the year. Four out of six Karpus strategies outperformed by more than 250bps, which will help marketing efforts.
• Estimates: Tighter fee margins and adverse exchange rate movements have led to downgrades of our earnings estimates. Our 2025E underlying EPS has decreased by 3% from 50.6¢ to 49.2¢ and our 2026E EPS has decreased by 2% from 55.5¢ to 54.1¢.
• Valuation: After the recent performance, the 2025E P/E of 12.5x is a noticeable discount to the peer group. A 2025E dividend yield of 8.7% 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 36% 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.