Bounce back in FUM after strong quarter

City of London has announced its trading statement for 2Q’24. Both developed and emerging markets bounced back from a weak 1Q’24 and posted gains for the six-month period. Over 1H’24, the MSCI Emerging Markets TR Index increased 4.7% while the MSCI All World ex US Index increased by 5.6%. These led to a strong increase in FUM, which was $9.58bn at 31 December 2023. This is a 2% increase over the 30 June figure, but 8% over the total at the end of 1Q’24. Across the strategies there was some outperformance, notably in Opportunistic Value and Fixed Income offset by some net outflows.

• Operations: Given market conditions, City of London has announced some cost reductions. It has identified ca. $2.5m p.a. of reductions with the full effect in FY2025. It announced estimated profit before amortisation and taxation for 1H’24 of $13.8m, a 1% increase over last year.
• Estimates: The increase in FUM and cost savings have led to significant upgrades to our estimates. Our 2024E EPS has increased by 6% from 40.0¢ to 42.1¢ and our 2025E EPS has increased by 11% from 41.8¢ to 46.6¢. We have left our dividend forecasts unchanged.
• Valuation: After the recent performance, the 2024E P/E of 13.7x is a noticeable discount to the peer group. A 2024E dividend yield of 9.2% 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.