City of London Investment Group (LON:CLIG) is the topic of conversation when Hardman and Co’s Financial Analyst Dr Brian Moretta caught up with DirectorsTalk for an exclusive interview.
Q1: City of London Investment Group recently announced its full-year results, what were the main features?
A1: Although the year-end funds under management were a little higher than a year previously, in between weak markets meant the average was lower than the previous year. This drove a decline in revenues and profits, with the former down 6% and underlying EPS declining from 44.2p to 36.5p.
Q2: What can you tell us about the costs?
A2: With revenues almost entirely in US Dollars and 35% of expenses in other currencies, the strengthening of the former meant that costs increased by 14% in sterling terms. They were also affected by some one-off adjustments.
We also note that the business is expanding the business development capacity in Karpus, which will inevitably create costs before revenues. Despite this, they have had a very strong track record on controlling costs and we expect that to continue.
Q3: How did flows into the funds and fund performance do?
A3: Fund flows were mixed, with Opportunistic Value and Karpus Institutional strategies seeing net inflows, but net outflows from Emerging Markets and Karpus Retail were larger.
The main strategies generally performed well, despite closed-end fund discounts widening over the year. Even in the areas that underperformed, the long-term track records remain strong.
Q4: Any news on prospects for fund flows?
A4: With good long-term strategy performance, the company is pretty well placed generally. The investment into business development at Karpus should help that business, albeit it may take a little time to produce. The company note that with wide discounts in the underlying investments, there is a good value opportunity for investors willing to take advantage of it.
However, both the company and ourselves have been making that argument for emerging market for some time and discounts have continued to widen. Nevertheless, it may resonate with some investors and help attract funds.
Q5: What else is worth noting in the update?
A5: CLIG has seeded new REIT and Global equity strategies. So far, both are performing well relative to benchmarks. The REIT one in particular will be approaching a three-year track record and may be able to start, slowly, attracting new funds.
Q6: Many of City of London Investment Group’s investors are there for the dividend. With that in mind, what can you tell me about the cash and dividends?
A6: The final dividend of 22p brought the full-year total to 33p, giving a yield, as of the report date, of 8.7%. Cash conversion in the results was excellent and rolling dividend cover of 1.2 times is exactly in line with the company’s rolling five-year target. We note that this was last reviewed in 2019 and the board may look at this again in 2024.
