No. of Recommendations: 34
City of London Investment Group is a City investment 'boutique' with a specifdic focus on emerging market closed-end funds. This is supplemented by natural resource and country specific emerging markets stocks within regional and global emerging market equity funds. Therefore they are firmly embedded in both emerging markets and closed-end funds.

They have had a tough year with FUM falling from £3bn to £2.4bn over the past 12 months although circa 83% of this was attributable to the loss of one major client. This client decided to take the management of its emerging market exposure (0.5bn) in-house after 5 years, based upona change in their strategic objectives.

During this period the shareprice has also fallen by 30% from 359p to 249p. However it looks as though the fall could have bottomed out and we could now see the shareprice rising again over the next 12 months due to a number of factors and management initiatives.

* The benchmark MXEF emerging market index is up by 7% over the past 7 weeks

* FUM increased by £100m of 4% during December

* Margins are up by 7%

* At the end of H1 the company had net cash of £5.8m (22p per share) and no pension deficit.

* Current year profit after tax should be circa £7m with eps of 26p

* Cost savings of £1m have been identified and implemented and are expected to be fully reflected in the new financial year 2013 - 2014

* A wide discount to NAV within many of their closed investment funds reflects does not yet reflect under supply of constructed product, which should result in a narrowing of discounts narrow and a corresponding improvement in investment performance.

* Their dividend policy is normally based on a split of one third/two thirds between the interim and the final. The interim dividend was confirmed at 8p and since there are currently "no plans for this to change" then the final dividend should remain at 16p. At the current shareprice this results in any annual yield of 9.5%

* Insiders hold 27% of the shares and 5 institutions hold around 35% of the stock.

CLIG is one of the most transparent and intelligently managed niche city investment operations. Their management philosophy was succinctly summarised by founder and CEO Barry Olliff last year:
"As shareholders are aware, we run a business with a very simple business model. We collect fees from our clients for our services, we pay our bills which are both forecastable and to a great extent fixed. We don't use leverage, nor off-balance sheet instruments, nor do we trade derivatives as principal (other than occasional low level hedging). There are no associated companies or minority interests within the Group. We do not use tax havens. We do not handle client monies. We have a significant amount of cash in the bank relative to our size and we basically stick to what we know.

With regard to remuneration we continue to distribute 30% of our profits as profit-share. Our staff, clients and shareholders understand this formulaic approach. It's a pity that this approach has not been embraced by the financial service industry generally. As it is, in many parts of the financial services industry it seems as if losses are not the responsibility of mangers rather it's the shareholders who take the rap. Whilst our formulaic approach seems out of keeping with many in our industry, at least our shareholders have an idea that our returns go up and down together with theirs.

We have continued to manage our business very conservatively. We have continued to attempt to keep costs down. We do not spend shareholders' funds entertaining and we generally attempt to manage our business as if shareholders were present in our offices every day of the week. One reason I would suggest that expenses are kept down is because staff are either shareholders themselves or own shares via the CLIG ESOP. At present staff own (including ESOP ownership) 27.9% of CLIG shares, and 75 out of 82 of us are incentivised in this way (a handful of more recent recruits do not yet hold options).

CLIG are also fully listed so they are ISA eligible too.
In my view they offer a good recovery proposition plus a stonking dividend in the meantime.
As always people should do their own research and the best place to start is on the company's own website.
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