Positive markets add to FUM and maintain dividend

City of London has announced its FUM for 4Q’24 and the full year. It was another positive quarter for the group, with FUM rising 1% from $10.10bn to $10.24bn. Over the financial year, FUM have increased 8.7% and are at their highest level since before the market weakness, in early 2022. Much of the positive effects this quarter were driven by markets: the MSCI Emerging Markets Index rose 4%, although the MSCI All-World ex-US index was flat. Inflows were mixed, with a positive quarter for the International strategy and outflows from Emerging Markets, KIM and Opportunistic Value. Nevertheless, 2H’24 was a great improvement over 1H’24.

• Funds and dividend: Over the year, performance was generally very good. Most strategies outperformed, with only two main strategies not doing so. The full-year dividend is expected to be the same as for the previous year. This was a final dividend of 22p, making 33p for the year.
• Estimates: With FUM almost in line with our forecasts, the main change was an adverse exchange rate movement. Our 2024E underlying EPS has decreased from 43.5¢ to 43.4¢, our 2025E EPS has decreased by 1% from 51.0¢ to 50.6¢. and our 2026E EPS has decreased by 1% from 55.9¢ to 55.5¢.
• Valuation: After the recent performance, the 2025E P/E of 11.2x is a noticeable discount to the peer group. A 2025E dividend yield of 9.1% 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.