H1 results confirm dividend cover

City of London has published its interim report for 1H2017. With the headline figures having been announced in last month’s trading statement, the report contains few surprises. As previously indicated, the movements in the dollar/sterling exchange rate have greatly increased most lines in the P&L. Gross revenue of £15.4m is 31% ahead of the 1H2016 figure. With more revenue earned in dollars than expenses, earnings have seen a bigger increase, by 64% to £4.27m.

• Dividend: An unchanged interim dividend of 8p has been announced. A decision on the final dividend has been deferred until the end of the financial year, with the hope that the outlook for the following year will be clearer then.
• Funds under management: Emerging markets, like many others, have had a good start to 2017 and at the end of February FUM had increased to $4.2bn. There was no further update on new business flows other than indicating there are prospects across the product range.
• Valuation: The prospective P/E of 9.8 times is at a significant discount to the peer group. The historic yield of 6.4% is very attractive and should at the very least provide support for the shares in the current volatile markets. At current market levels we’d expect dividend cover to be restored in 2017.
• Risks: To date, City of London has not experienced the sort of outflows that some other emerging market fund managers have, aided by its good performance and strong client servicing. Further EM volatility may increase the risk of such outflows however.
• Investment summary: City of London has continued to show robust performance in challenging market conditions. The valuation remains reasonable. At current FUM and exchange rates, dividend cover will return to a comfortable position and investors can perhaps start thinking about future increases.