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MN - Manning & Napier


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Manning & Napier (MN) is an asset manager.  At $4, the company has a $95mln market cap and $75mln of net cash for a ~20mln EV.  Current AUM is $19.2bln so 0.10% of AUM.  TTM Net Income adjusted for restructuring charges is ~54c per share so an adj P/E of 7.4x. 

 

The company hired a new CEO Marc Mayer in early 2019.  Since arriving Mayer has upgraded the company's old technology and cut expenses to drive profitability.  He has publicly discussed a goal of 20mln of EBIT.

 

Mayer's compensation includes an options package that ladder vests from $3.25 to $7.75.  Insiders have bought >400k shares since Mayer's appointment including at prices up to $4.47 per share (although most of the shares were purchased below $2 before a very accretive buyback in early 2020).

 

Key question is whether they can stabilize AUM.  Outflows have continued to improve since Mayer's appointment but inflows have not improved yet (company blames COVID on slowing progress).  Mayer has commented that he is seeing green shoots but that remains to be seen.

 

Overall, seems like a very cheap option on a potential turnaround with an incentivized management team. 

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Ratiman, why did you choose to only include AUM years up to 2018?  New CEO joined in Jan 2019 and outflows have been much better since then.  MN  had very bad performance from 2014 -2016 which really hurt their AUM growth.  They have generally had good performance since then and so their 3 and 5 year track records have now recovered which should help with AUM going forward. 

 

I would argue that new management is both highly capable and highly motivated to receive value for their shares Employees and board own 31% of fully diluted shares, they have bought in the open market, and CEO Mayer's options ladder to 7.75.

 

I agree if AUM takes the path of 2013-18 then this investment won't work.  However even if AUM continues to decline, I think its hard to loose too much given the cash position and lack of burn.  If AUM stabilizes, then 0.10% of AUM seems way to low to me.

 

 

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Ratiman, why did you choose to only include AUM years up to 2018?  New CEO joined in Jan 2019 and outflows have been much better since then.  MN  had very bad performance from 2014 -2016 which really hurt their AUM growth.  They have generally had good performance since then and so their 3 and 5 year track records have now recovered which should help with AUM going forward. 

 

I would argue that new management is both highly capable and highly motivated to receive value for their shares Employees and board own 31% of fully diluted shares, they have bought in the open market, and CEO Mayer's options ladder to 7.75.

 

I agree if AUM takes the path of 2013-18 then this investment won't work.  However even if AUM continues to decline, I think its hard to loose too much given the cash position and lack of burn.  If AUM stabilizes, then 0.10% of AUM seems way to low to me.

 

Thats the only graph I found for their AUM. I agree that at first sight it looks like a decent bargain, *if management sells right now*. If management isn't going to sell right now, which is absolutely what they should do, do you want to own this? The entire fund industry is consolidating and the only way to grow profits is by consolidating and cutting costs. Would you want to be a salesperson selling MN funds? No way, right? If management is going to plow gross margin back into a dying business, then I think the business is going to spin its wheels for a few years before it ultimately sells. In that scenario I don't see a great return for MN investors.

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What are the chances that MN intends to sell to an acquirer? It bought the Bill Manning shares because MN had the discretion to buy at a preset price. I assume those shares were like typical dual class shares, they existed to maintain founder control over the company. Now that the shares have been cleaned up, it opens the path towards an acquisition. The fact that the director of investments is buying shares is also significant. He's obviously a well-informed and sophisticated buyer and he sold back in 2018 at the same level. The recent AUM report is bad (more deterioration) but again, what if that creates the urgency to sell? Artio sold because it was floating on a melting iceberg. MN is in the same situation. Either outcome - increase or decline of AUM - leads to a higher stock price.

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