Manning & Napier's Dividend Could Be At Risk As Q3 Results Come In Below Expectations

Manning and Napier Inc MN reported disappointing Q3 results. “Continued pressure on revenues and elevated compensation costs are likely to keep pressure on margins,” Keefe, Bruyette & Woods’ Robert Lee said in a report. He downgraded the rating on the company from Market Perform to Underperform, while reducing the price target from $7.75 to $7.00.

There is risk to Manning & Napier's dividend if the current weakness persists, analyst Lee mentioned.

Poor Results

The company reported weaker-than-expected Q3 results, mainly due to lower revenues. Net outflows came in at $2.3 billon, almost in-line with KBW’s $2.4 billon forecast. “While investment performance has improved, we expect flows to remain negative,” Lee wrote.

Pre-tax operating margin was 34.3 percent, short of the expectation of 36.4 percent. The analyst pointed out that Manning & Napier's margins could remain under pressure if there is continued pressure on revenues and compensation costs remain elevated.

Estimates Reduced

The analyst lowered the EPS estimates for 2016, 2017 and 2018 from $0.73 to $0.69, from $0.71 to $0.63 and from $0.72 to $0.62, respectively, “mainly to reflect higher expected compensation expense, but also somewhat weaker revenues due to sustained outflows.”

Dividend At Risk

In case AUM and related revenues and earnings continue to be under pressure, the company’s dividend “is likely at risk as we doubt that management would want to use, at least for an extended period of time, its excess cash on the balance sheet to support the dividend,” Lee stated.

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