City Of London Investment Share Discussion Threads

[davebowler] 03/10/2016 14:24

vacendak on UEM post;
For those with an FT Premium account:


Excerpt:
"Paul Jackson, head of multi-asset research at Source, points to the cyclically adjusted price-to-earnings ratio, known as Cape, which values stocks compared with a 10-year moving average of their earnings.

As of the end of August this ratio was 12.6 in emerging markets, comfortably below its long-run average of 20.2, according to Source, as shown in the chart. Moreover, this Cape reading is lower than in any other region of the world, with Europe ex-UK currently trading on a ratio of 12.9, the UK on 15.4, Japan on 21.4 and the US on 25.7. The global average is 17.8.

While Cape tends to be a relatively long-term indicator, Mr Jackson believes emerging markets should get a more immediate boost from a pick-up in dividend payments."

[cockerhoop] 03/10/2016 12:55

Broker notes are pretty pointless in CLIG imo as many of the moving parts are out of the companies control - Emerging market performance and £/$ exchange rate being the primary ones. They may give a steer on new investment mandates and costs but that's pretty much it.

Anyway looks like AUM will be stable at around $4.3bn (at the end of Sept) when announced later this week.

[vfast] 28/9/2016 12:00

After reading both papers Zeus are more optimistic than Singer however both were positive and for me this is a long term hold and very pleased with my 24p 7% yield and that may progress in 2017/18.

[aleman] 28/9/2016 10:00

I ses Zeus now forecast 25p and 27p dividends for 2017 and 2018 and N+1 Singer have 24p and 27.48p. Presumably that is why the shares have been pushing up recently.

[topvest] 17/9/2016 17:15

Well I really like this company. It's really well run with a strategy that actually works. 1/3rd profit share for the staff is a big incentive, but it keeps costs down if the company performs poorly. This is definitely not what you would call a greedy company. Think they could well accumulate more than US$5BN of AUM reasonably soon and with £ where it is, it all bodes well. Tempted for another top-up.

[2wild] 15/9/2016 22:20

I toped up my holding this morning at £3.65, as the shares go ex div next month at 16p meaning if you hold for 13 months you get 40p (16 + 8 + 16) over 10% annualised and could be more.

[speedsgh] 15/9/2016 11:23

Zeus are corporate broker to CLIG + AFAIAA Hardman research notes are paid for by the target client (i.e. CLIG) so I would suggest that their projections should be taken with a liberal pinch (or handfull) of salt.

[robsy2] 15/9/2016 11:14

I totally agree. This is fairly typical of the industry. A lot of people get a big salary, bonus, free shares, pension contributions, severence packages and the benefits package is more fixed than variable. The shareholders come a distant second and the fund holders/ customers pay for the whole thing....
R2

[tmfmayn] 15/9/2016 09:51

The clear downside to these latest results is the plan to lift the staff profit share from 30% to 35%.

It is not obvious to me why the staff deserve extra payments given the performance of the business during recent years.

The chart on page 15 of the 2016 annual report clearly shows CLIG's income (the dark blue line) stagnating during the last five years, as FUM have lagged the benchmark index. I could understand the extra bonus payment had CLIG had out-performed the benchmark over time, but to me it seems shareholders are being asked to forego some of their earnings just to placate so-so performing staff.

At least this 35% profit share proposal is being put to the vote at the AGM. I hope it is voted down and the staff are effectively told by shareholders to knuckle down and earn their extra cash.

[tmfmayn] 15/9/2016 09:42

From Zeus Capital and Hardman & Co:
hxxp://citlon.co.uk/shareholders/share_reports/ZeusCapitalReport9_16.pdf
hxxp://citlon.co.uk/shareholders/share_reports/HardmanCligReport9_16.pdf

The notes include some ambitious forecasts.

Zeus reckons funds under management will increase by $801m to $4.8bn during 2017, and by a further $400m during 2018.

Zeus’s guess for net client-money inflows for 2017 is $500m, which is what CLIG is targeting for new money before outflows. The past two years have seen outflows of $457m and $351m, so Zeus assuming a $0m outflow for 2017 seems optimistic to me.

Also, Zeus’s profit sums for 2018 are based on a 30% profit share, despite the 35% profit share coming into force from October 2017.

Hardman appears to be forecasting FuM to grow from $4bn to $4.87bn for 2017 and to $5.53bn for 2018 on page 1 of its report, but on page 6 the FuM numbers are different. The FuM growth %s on page 6 suggest the page 1 FuM numbers are the actual projections.

Hardman hasn’t disclosed the finer points of its FuM forecasting, but going for $4.9bn does mean CLIG will i) have to meet its $500m target for new client money ii) have nothing in the way of client outflows, and iii) have to hang to the $4.4bn FuM it currently enjoys.

For some perspective with the perils of FuM forecasting, I have a Hardman note dated January 2015 which predicted FuM of $5.48bn for 2016. The figure the latest results confirmed was actually $4.0bn.

[topvest] 14/9/2016 20:47

I think the dividend will be held until there is a material improvement (i.e. step change).

[aleman] 14/9/2016 09:54

Never seen a company RNS a broker report before. The dividend forecasts look tight. Earnings up to 32.6p and 39.1p but dividend to stay at 24p? Couldn't they have at least stuck their necks out and said 25p and 26p?

[masurenguy] 14/9/2016 09:49

Exchange rate moves give big boost

The full year results from City of London showed no surprises following the trading statement in July. Weaker markets were the dominant feature, with lower funds under management compared to FY2015 leading to a fall in revenues and profits in FY2016. Revenues declined 4% over the previous financial year to £24.4m and operational gearing led to a larger 11% fall in pre-tax profits to £8.0m. As usual, cash conversion was excellent with net operating cashflow at 96% of profits.

The final quarter of FY2016 saw a recovery in Emerging Markets which has continued since the financial year end. FUM have grown to $4.4bn, a 10% improvement since the year end.

► Dividend: The dividend for the full year has been kept unchanged. It was marginally uncovered for the year as a whole at 0.97x, but was covered on a run rate basis in the final quarter. With cash balances back over £10m there is more than ample reserve to cover the small shortfall.
► Valuation: After the recent upgrades the prospective P/E of 11.4 times is now at a discount to the peer group. The yield of 6.5% 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 be restored in FY2017 adding to investors comfort.

Investors should note that the dramatic moves in the exchange rates after the Brexit vote will have further impact on City of London’s figures in the 2017 accounts. With the move happening towards the end of June there will continue to be strong beneficial effect on the revenue, expense and cashflow figures. The balance sheet, of course, already reflects the movements....... We have also adjusted for the increase in FUM as of the reporting date to $4.4bn. The latter has led to net upgrades.

It is clear that recent equity and exchange rate market movements have been favourable for City of London. We are cautious in extrapolating those trends and our forecasts essentially reflect a stable projection, though we do show some sensitivity figures to allow investors to make their adjustments as future moves occur. City of London have produced a matrix of profitability based on current expenses and the stated exchange rate and FUM assumptions.

The cost of the dividend is slightly under £6m, and we have highlighted the cells where it would be uncovered. Based on the above table, run rate profitability is currently in the £8.5-9.0m range. We cannot rule out market movements that would lead to an uncovering of the dividend, there is clearly a substantial buffer before that happens. If market conditions remain as they are for the next twelve months then there may be the possibility of a dividend increase. We are not forecasting that as yet, and if there is we believe it would unlikely to be more than 1p. But in the absence of adverse changes it is something investors will start to think about.

[topvest] 12/9/2016 21:13

Yes, all looks very good to me. Only downside is that the business is quite dependant on Barry Olliff to steer the ship away from any dangerous rocks. You do wonder whether it may not be of interest to a larger asset management group at some point as and when shareholders want an appealing exit. You cannot deny that their business strategy in closed end funds is very credible for the long term and does actually work. This is more than can be said for the numerous hyper-active index trackers out there!

[vfast] 12/9/2016 09:48

Zeus Capital rise their forecast

FY17 & FY18 forecasts raised

What’s new

CLIG’s Report & Accounts published this morning confirms the results in the 18 July trading update, namely:

 CLIG’s funds under management were $4.0bn at 30 June 2016;
 Pre-tax profits will be approx. £8.0m;
 Post tax profits will be approx. £5.9m
 Maintained final DPS of 16p making the total DPS 24p.

Today’s report confirms that trading has been very favourable, specifically:

 Sterling weakness has led to an increase in EBIT in July and August;
 The rise in the MSCI Emerging Markets index has increased group FUM.
 CLIG’s investment performance continues to be in the 1st or 2nd quartiles and CLIG’s Size Weighted Average Discount (SWAD) suggests that there are good prospects for further outperformance.

Zeus view

Now that Sterling has stabilized at around $1.33 and the MXEF is trading comfortably above 900, we feel it is appropriate to rebase our forecasts, reflecting:

 Beneficial impact of 10% sustained Sterling weakness;
 The 11% rise in the MSCI Emerging Markets index since 30 June 2016.

We have increased our FY17e EPS by 15% to 33.1p and our FY18e EPS by 19% to 40.8p. With these higher earnings, we expect the Board would consider a dividend increase appropriate.
Valuation

At 372p CLIG is trading on an historical dividend yield of 6.5%. Over the next two years we expect CLIG’s DPS to rise 12.5% and its yield to shift to 5.5%.

At 432p (16.1% above yesterday’s close), CLIG shares would be trading on 5.6% historic dividend yield and 5.8% prospective. In our opinion a 5.5% dividend yield reflects the market risks and quality of CLIG’s earnings stream.

[mister md] 12/9/2016 08:37

I would normally have addded a few more on these results, just a bit concerned about overall direction of the markets at this time ...

[masurenguy] 12/9/2016 07:57

12th September 2016

FINAL RESULTS FOR THE YEAR TO 30TH JUNE 2016

SUMMARY

•Funds under Management (FuM) at 30th June 2016 were US$4.0 billion (2015: US$4.2 billion), a fall of 5%. In sterling terms, FuM increased by 11% to £3.0 billion (2015: £2.7 billion) as a result of the exchange rate moving from 1.57 to 1.33 over the period. The MSCI Emerging Markets TR Net Index fell 12% over the same period.

•Revenues, representing the Group's management charges on FuM, were £24.4 million 2015: £25.4 million). Profit before tax was £8.0 million (2015: £8.9 million).

•Basic earnings per share were 23.3p (2015: 26.4p) after a tax charge of 27% (2015: 26%) of pre-tax profits.

•A maintained final dividend of 16p per share is recommended, payable on 31st October 2016 to shareholders on the register on 14th October 2016, making a total for the year of 24p (2015: 24p).

Dividends

As already noted at the interim stage your Board, when appropriate, will take advantage of the flexibility included in your Company's dividend policy to ensure shareholders enjoy a consistent and predictable dividend income. Although the maintained final dividend income of 16p per share making a total for the year of 24p will not be covered, the much improved outlook, noting in particular the beneficial effect on our profits illustrated in our FX Matrix of the post-BREXIT decline in the value of sterling, together with the Group's strong cash position, fully justify this payment.

Outlook

Over the 2015/16 year the average month end FuM (the relevant dates for fee determination) was US$3.8 billion. To date in the current year the average has been US$4.3 billion. Costs have been contained and so the outcome for the year will be determined by the direction of markets (on which I am not expressing an opinion but note our proactive stance in ensuring that our cost base does not increase in tandem with rising markets), our investment performance and client wins and redemptions. As regards the latter we are grateful to the loyalty shown by clients during a period when Emerging Markets have been volatile and only really appealed to contrarians. I have every reason to believe that our well-honed investment process for our core products will continue to deliver returns superior to our peer group and thereby reward both longstanding and new clients for putting their trust in this firm.

Barry Olliff Comment: "In terms of my CLIG shares I will continue to sell them into strength. My intention therefore (as last year) remains to sell 500,000 at 400p and 500,000 at 450p. Since the year end FuM have risen from US$4.0 billion to US$4.4 billion, at the time of writing. In addition, the firm continues to have a robust pipeline of potential future business across all asset classes. CLIM continues to see robust institutional activity across Closed-End Fund asset classes and has every reason to believe that it will at least maintain its position in terms of the provision of Closed-End Fund solutions. I would again like to thank staff for their hard work over many years in what has been a very difficult market environment. It's very good news that at long last sentiment seems to have changed towards our asset class.This would bring the total for the year to 30th June 2016 to 24p (2015: 24p), giving a cover of 0.97 x earnings per share (2015: 1.1 x)."

Complete results statement:

[chairman20] 06/9/2016 11:19

That chart says to me there is nothing to stop
these going straight to 400 (Bar economic reality - of course!!)

[irenekent] 06/9/2016 08:34

They make an interesting contrast to Ashmore who have published results today. Generally when ASHM are down CLIG is up.

[my retirement fund] 05/9/2016 11:52

IMO fair value £4.50 here, looks materially undervalued imo.

[aleman] 05/9/2016 11:01

Thanks. So FUM nearly back to H1 2012 levels when the share price was 380p - except £ to $ was over 1.60 then, so FUM/earnings in sterling now potentially 20% higher.

[tmfmayn] 05/9/2016 10:43

End of August FUM now shown
hxxp://www.citlon.com/shareholders/announcements.php

Up again to what could be $4.25bn.

[littleminx247] 28/8/2016 20:39

Making my first purchase this week! Fantastic long term prospects coupled with juicy dividends. Well managed always in a highly proffesional manner.

[garycook] 23/8/2016 14:13

Certainly looking very bullish.

[garycook] 23/8/2016 14:11

Certainly looking very bullish.