Canaccord Capital May Need to Cut Dividend

Loads of cash and very little debt, yet Canaccord Capital Inc. (CCDF.PK), which announced early Thursday it will cut roughly 10% of its workforce, may need to cut its dividend. 

That's the picture being painted by TD Newcrest analyst Doug Young in a new research note previewing Canaccord's fiscal 2009 second quarter results due out next Thursday.

"[Canaccord] currently has excess cash; and it has limited debt in its capital structure. However, we see depressed financing activity as being the norm over the next year, especially for small cap/resource/energy names, which are Canaccord's sweet spots," he wrote to clients.

"Therefore, we see no material near term catalysts. Lastly we believe it may cut its dividend in order to preserve cash in light of difficult equity market conditions."

Mr. Young said he expects a 64% reduction in the independent full service broker's dividend from 12 1/2¢ to 4 1/2¢, adding that competitor GMP Capital Trust recently cut its dividend by 64% in two stages.

The analyst cut his earnings estimates for fiscal 2009 and 2010 to reflect his more pessimistic outlook. His 2009 EPS estimate falls from $1.05 to 20¢ and his 2010 estimate drops from $1.20 to 40¢.  Mr. Young reduced his price target on the stock from C$13 to C$7 and downgraded his rating from "buy" to "hold."