(Alliance News) - M&G Investment Management Ltd on Friday took aim at takeover target UK Mortgages Ltd's "unsustainable" dividend policy and said its net asset value is not an accurate representation of the company's worth.
M&G Investment Management said Monday it had made several approaches to buy investment fund UK Mortgages - all of which were rejected. M&G Investment Management is an asset manager and part of M&G Group. Both M&G Investment Management and M&G Group are fully owned subsidiaries of M&G PLC, the FTSE 100-listed international savings and investment business.
UK Mortgages on Wednesday said the M&G Investment Management offer undervalued the company.
"The board considered the proposal together with its financial adviser, Numis Securities Ltd, and unanimously rejected it on July 19, having concluded that the terms materially undervalue the company and its prospects. The board of UKML has received no further proposal since the unanimous rejection and is not in discussions with MAGIM at this time," UK Mortgages explained.
Also on Wednesday, it said it will restore its dividend to 4.5 pence per share annually, in "light of the portfolio performance observed as the UK lockdown begins to ease".
M&G Investment Management on Friday said the restored payout plans are "unsustainable, being significantly funded from capital resources rather than earnings".
"UKML has not historically generated sufficient income to cover this dividend target. An annual dividend of 4.5p per share (GBP12.3 million in aggregate) would only be 57% covered by UKML's total comprehensive gain of GBP7.0 million for the financial year ended June 30, 2019 and 55% covered by UKML's total comprehensive gain of GBP3.4 million for the six-month period ended December 31, 2019 annualised to GBP6.8 million," M&G Investment Management said.
"MAGIM believes that dividends significantly funded from capital are not sustainable."
It also took aim at UK Mortgage's optimistic update on Wednesday for failing "to address the uncertain outlook for the company's future profits", more specifically due to payment holidays, arrears and defaults due to the current economic backdrop.
"MAGIM further believes that UKML's net asset value is based on the historical purchase price of its assets which does not take into account the impact of widening credit spreads, the economic outlook and weakening performance of UKML's underlying assets including payment holidays and likely increasing arrears. These factors reduce the net present value of UKML's future cash flows and as a result the company's intrinsic value (which the current approach to calculating NAV fails to capture)," M&G Investment Management added.
The M&G unit also added that it has "continued to engage" with UK Mortgage's board though it added that there can be no certainty that another offer for the company will be made.
UK Mortgages shares were 3.1% higher at 67.00p each in London on Friday afternoon. M&G PLC was down 5.7% at 163.35 on the FTSE 100.
By Eric Cunha; ericcunha@alliancenews.com
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