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Investor caution hits City of London

RESULTS: City of London Investment still faces headwinds as investors remain cautious - although the dividend yield is hard to ignore
January 21, 2013

Profits fell at the half-year stage for City of London Investment (CLIG) - reflecting a fall in funds under management from $4.8bn (£3bn) a year earlier to $3.9bn. Accordingly, management fee income fell 12 per cent during the period to £15.1m. The decline in funds included a $500m redemption from a single client, although sentiment among all investors remained fragile given the current economic backdrop.

IC TIP: Hold at 250p

The underlying picture looks more encouraging; overall costs fell 9 per cent in the period to £10.5m, with technology-driven efficiencies expected to deliver a further annualised £1m of savings. Furthermore, a 10-year agreement with North Bridge Capital, whereby the company paid 20 per cent commission for any business introduced through North Bridge, is now in run-off. So the company will receive the full fee income on any new business and payments to North Bridge fell from £2.7m to £2.2m. The run-off will continue until 2020 and operating margins have already started to improve - from 0.85 per cent in December 2010 to 0.91 per cent in December 2012.

Even so, ongoing volatility has affected investment performance with discounts to net asset values having continued to widen. In fact, the size weighted average discount grew from 8.7 per cent in October 2010 to 13.4 per cent in September last year, although since then the discount has narrowed to 13.1 per cent at the end of December.

Subject to revision, Canaccord Genuity is forecasting full-year pre-tax profits of £8.8m and EPS of 23.7p (2012:£11.5m/32.8p).

CITY OF LONDON INVESTMENT (CLIG)
ORD PRICE:250pMARKET VALUE:£67m
TOUCH:250-252p12-MONTH HIGH:390pLOW: 238p
DIVIDEND YIELD:9.6%PE RATIO:8
NET ASSET VALUE:51pNET CASH:£5.8m

Half-year to 30 NovTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201117.26.1016.28.00
201215.14.6613.18.00*
% change-12-24-19 -

*Paid on 28 December 2012