City of London investment trust earnings flattened by sterling

18th Sep 2014 10:52

City of London Investment Trust (CTY) said it had a "satisfactory year" after results were hit by the strength in sterling and weak economies overseas.The group, whose largest blue-chip investments include Royal Dutch Shell, British American Tobacco and HSBC, said the total return on net asset value was 14.7% during the year to 30 June, compared with a return of 23.8% the previous year.Earnings per share increased by just 0.4% as an 11% rise in investment income to £45.6m was offset by a 25m increase in shares in issue. CTY lifted its dividend by 3.2%.With 22% of the dividends CTY receives being declared in dollars, payouts from portfolio companies "did not fairly reflect the underlying dividend growth" given that the pound appreciated 12.4% against the dollar during the period.Meanwhile, the company also noted a "marked difference" between the first and second halves of the financial year, with the UK equity market returning 11.3% in the six months to 31 December 2013 but just 1.6% in the six months to 30 June 2014."The rise of sterling together with weakness in some overseas economies led to downgrades in analysts' profit expectations for many companies in the first half of 2014," CTY said. It also highlighted increased expectations of a rate rise in the UK.Looking ahead, chairman Philip Remnant said that some de-rating of stocks is occurring this year after strong share-price gains in 2012 and 2013, ahead of a likely rise in interest rates."Given low UK inflation and the weakness in wage increases, any upward move in interest rates is likely to be gradual. As a result, equities are set to remain attractive on a dividend yield and growth basis relative to fixed interest and bank deposits. It is an environment which should play well to City of London's strengths," he said.The stock was up 0.8% at 379.11p by 13:34 on Thursday.