GMP cuts rating and target on Sprott

GMP Securities LP is cutting its rating and share price target on Sprott Inc. after the independent asset manager pre-released figures for the end of 2011 on Monday, reporting disappointing performance fees.

Toronto-based Sprott estimated that its fourth-quarter assets under management came in at $9.1-billion, down from $9.9-billion in the third quarter of 2011 and below an expected $10.7-billion, said Stephen Boland, an analyst with GMP.

Sprott also estimated it generated about $4-million in gross performance fees for all of 2011.

“Fourth-quarter performance fees were below GMP’s estimate of $30-million as Sprott’s mutual and hedge funds performance suffered in December 2011,” Mr. Boland said in a note to clients.

He pointed to fund performance troubles in 2011, with “a number of flagship funds reporting negative returns of over 20% for the year.”

With several funds in deficit positions heading into 2012, Mr. Boland said he is reducing his 2012 performance fee estimate to $45-million from $105-million.

“Continued difficult markets and Sprott’s large deficit positions may impede the company’s ability to generate performance fees,” he said.

“The ongoing global financial crisis and movement away from risk assets had the unforeseen effect of dampening enthusiasm for precious metal equities, negatively impacting our investment performance fee generation,” Peter Grosskopf, chief executive of Sprott, said of the early estimates of 2011 results.

Mr. Boland did note that at $1.4-billion, net sales for 2011 were “solid,” but added he believes “funds suffered net redemptions of $210-million” in the fourth quarter of 2011.

He cut his rating on the stock from buy to hold and lowered his price target to $6.50 from $9.00.

Sprott’s stock closed at $6.32 on Friday and was trading up about 0.6% at $6.36 by 1:45 p.m. Monday.

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