M&G disappoints investors

M&G's decision to hold its interim dividend was seen as a veiled profits warning by the market yesterday, which marked down the fund manager's shares by 4 per cent to pounds 12.82p. Analysts also downgraded full-year forecasts.

One, who did not want to be named, cut his estimate by 10 per cent from pounds 76m to pounds 68m. "It is ironic given M&G's aggressive stance on dividend growth that they have decided to maintain their numbers. It sends out the wrong signals," he said

M&G said that its results for the six months to 31 March, had been adversely affected by the underperformance of its UK equity trusts, though international, fixed interest and institutional funds all showed above average performance. Pre-tax profits grew 6 per cent to pounds 33.2m with earnings per share up 6 per cent to 30.4p. The dividend is 16p.

Michael McLintock, managing director, said that the profits increase was modest and compared with an average 13 per cent rise in the FTSE All share index: He added: "Below average short-term performance from a number of our UK funds affected new business levels and depressed the level of both annual and initial fee income."

Mr McLintock said that marketing and commissions expenditure had risen 34 per cent to pounds 24m, mainly reflecting the cost of buying the "no initial charge" business. The group also spent pounds 2m on television advertising to generate wider brand awareness. However, he said that costs were under "firm control", with administration expenses 11 per cent lower than the previous period. Sales of unit trusts and PEPs fell 44 per cent to pounds 312m.

Analysts said the second-half figures would be blighted by pounds 5m of costs related to sorting out the millennium bug and revamping old-fashioned brands.

They said new management was expected to improve M&G's performance, but it was still a clear bid target. One said:"There are plenty of big banks and insurance companies out there who need a fund management arm. M&G won't get into bed with any old foreigner, but they might give themselves up to a UK group such as Halifax."