Positive inflows boost FUM

City of London has announced its FUM for 3Q’24. It was a positive quarter, with group FUM rising 5.5%, from $9.58bn to $10.10bn. The largest contribution came from a positive market backdrop: all the benchmark indices for CLIM strategies delivered positive returns over the quarter. The MSCI Emerging Markets net total return Index was up 2.1%, while the MSCI ACWI ex US Index increased 4.5%, giving positive market movements across the strategies. Perhaps more importantly, City of London delivered its best quarter for fund flows for some time. Total net inflows were $224m, with the $54m of net inflows into Karpus being the strongest since it joined the group.

• Funds: Performance across the first half was variable, which is natural over a single quarter. Broadly, Emerging Market and Fixed Income strategies outperformed, while International and Opportunistic Value strategies underperformed.
• Estimates: The good market performance has led to meaningful upgrades to our earnings estimates. Our 2024E underlying EPS has increased by 3% from 42.3¢ to 43.5¢, our 2025E EPS has increased by 7% from 47.8¢ to 51.0¢. and our 2026E EPS has increased by 6% from 52.6¢ to 55.9¢.
• Valuation: After the recent performance, the 2025E P/E of 9.9x is a noticeable discount to the peer group. A 2025E dividend yield of 9.7% 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. Going forward, the prospects for future dividend increases will be dependent on market growth and the ability to attract significant new business at good margins.

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