EFM slides 26% after dividend is suspended

Edinburgh Fund Managers shares slumped 26 per cent yesterday after the distressed asset management company announced it was suspending its dividend to reflect uncertainty about prospects for the second half of the year.

EFM said pre-tax profits had fallen by 22 per cent to £3.1m in the six months ending 31 July, due to weak markets. EFM's shares closed down 40p at 112.5p.

EFM lost its biggest client, Edinburgh Investment Trust, in July because the trust was disappointed by the fund manager's performance.

EFM also suffered because the uncertainty about whether Edinburgh Investment Trust would stick with it undermined interest from two potential buyers earlier this year. They included Hermes, the BT pension fund manager, which was rumoured to offer EFM £6 a share in February but then walked away because it feared the investment trust would withdraw its £1bn of funds.

The latest gloomy news from EFM puts its chief executive, Iain Watt, under fresh pressure to leave. He has presided over a 76 per cent drop in EFM's share price this year.

Mr Watt said he would "absolutely" stay on at the company. But he added that the market was "very uncertain". As a result, EFM is scrapping its first-half dividend to preserve cash.

Analysts speculated that Hermes might take a fresh look at EFM, because its value has fallen so dramatically. One said: "The parts of the business would probably be valued at a lot more if they were not part of EFM."

Analysts also pointed out that most of EFM's problems are in the past and that its prospects look better for 2003. The company has improved its investment performance by taking on star fund managers.