City of London Investment Group (LON:CLIG) is the topic of discussion when Zeus Capital Analyst Robin Savage talks to DirectorsTalk. Robin talks us through CLIG’s pre-close statement, the outlook for next year and explains how he sees the shares trading over the coming months and year.
What’s new. CLIG’s unaudited pre-close statement for the year to 30 June 2018 reveals strong growth, despite the recent fall in market values:
- 10% rise in Group Funds under Management to US$5.1bn (£3.9bn), with Emerging Market products contributing 82% and diversification products (i.e. Developed Market, Opportunistic Value and Frontier products) 18%.
- 10.3% rise in PBT to £12.8m (3.8% below Zeus forecast of £13.3m), with a 22% tax charge 11.0% rise in PAT to £10.1m (0.9% below Zeus forecast of £10.2m).
- 7.1% rise in fully diluted EPS to 39.3p (2.5% below Zeus forecast of 40.3p) and 8.0% rise in Full Year DPS to 27p (precisely in line with Zeus forecast of 27p).
The full results on 17 September will provide further additional information, such as FY18E revenue (Zeus forecast is now £33.5m; previously forecast: £34.0m) and net cash (Zeus forecast is now £18.0m; previously forecast: £18.8m).
As always, CLIG outlook commentary is clear: “The core EM strategy underperformed for the full year as discounts widened and an underweight to China, specifically the IT sector detracted from performance. The [diversification products] all recorded positive relative performance due to a combination of positive discount and allocation effects.”
Zeus view. In rising markets CLIG delivered FuM, revenue, EPS and DPS growth. The recent fall in emerging markets has depressed profits and EPS slightly below forecast. We are impressed by the success of CLIG’s diversification products, where the relative performance has been positive and $400m of net inflows have increased FUM to $900m (up 95% on 30 June 2017: $461m).
Rebasing our forecasts to current market levels (see pages 2 to 4), we cut our FY(Jun)19E EPS forecasts by 11.6% to 40.4p (previously 45.7p), and trim our FY(Jun)19E DPS forecast by 3.4% to 28p (previously 29p).
Valuation. CLIG shares at 400p are cum 18.0p final DPS (4.5% yield on the final DPS alone). CLIG shares goes “ex” on Thursday 11 October.