Clime Investment Management (CIW)

In the previous post I referred to a company run by management with a sensible approach to capital management. CIW is like The Magic Pudding - it just keeps giving thanks to its strong cash-flow being deployed on shareholder favourable terms: ordinary and special dividends, buy-backs and conservative investments. This is not a cigar-butt story. This is a fair price for a good company story that should - touch wood - continue to reward shareholders through growing dividends and share price. 

CIW is mostly a financial services business comprising cash, a funds management business, investment in its own managed funds, a stock-market research business and also owns a business supplying stationery and office supplies. Half year results have just been posted  - here is a summary of the balance sheet: 

CIW has provided the value of Cash, Managed Fund Investments and Jasco. It is up to us to value the stock-market research and funds management businesses to get an overall valuation of the company. Here is a breakdown of the revenue/profitability for the last

StocksInValue is a subscription service to help value investors find cheap stocks. It was folded into a JV with the popular Eureka Report (owned by Newscorp), which in my opinion was an excellent move to increase brand awareness for the Clime funds business. The JV is losing a bit of money at the moment, and I'm not sure if you can get too excited about a valuation for that type of business. For the purposes of this analysis and to keep things simple, I am valuing it as zero as a stand-alone business.

This leaves the funds management business. CIW has have just launched an international fund to leverage off the success of its successful Australian stock focused business. FUM growth for its local funds continues to impress: up from $448m 30 June to $527m by the end of December. Given the leverage to FUM growth (costs don't increase anywhere near as fast as revenue when FUM grows), the value of a funds business can increase exponentially. Let's assume ongoing MER and performance fees are 1% p.a. (which will mean CIW isn't making much performance fee revenue). At $527m revenue is $5.27m p.a. At $1bn, revenue is $10m p.a. I doubt if expenses will increase by more than $1m at the same time - probably a lot less. Conservatively the funds business could be valued at $30m based on current FUM and easily double if it reaches $1bn. Let's stick with $30m Stripping out intangibles and adding in $30m gives a loose value of $46.9m or 94c: a little bit above the current price of 86c. Please note these are my valuations only and should not be relied upon.

Kristian 

Disclosure: own CIW

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