Franklin Resources Inc. (BEN) declared preliminary assets under management (AUM) of $727.4 billion by its subsidiaries for the end of February 2012. The company’s results witnessed a rise of 3.3% from $704.3 billion as of January 31, 2012 and an increase of 4.9% from $693.7 billion as of February 28, 2011.
Month-end total equity assets came in at $301.1 billion, up 4.5% sequentially, but down 1.0% on a year-over-year basis. Of the total equity assets, roughly 73% were from international sources, while the remaining 27% were from the U.S.
Total fixed income assets were $317.2 billion, up 2.4% from $309.9 billion as of January 31, 2012, while significantly increasing from $270.2 billion as of February 28, 2011. Of the total, tax-free assets accounted for only 24%, while the rest 76% were taxable.
Franklin recorded $102.7 billion in hybrid assets, up 2.8% from $99.9 billion as of January 31, 2012, but down 8.3% from $112.0 billion as of February 28, 2011. Cash management funds as reported were $6.4 billion, up from $6.3 billion recorded in the prior month, but down from $7.5 billion as of February 2011.
On a quarterly basis, as of December 31, 2011, total AUM was $670.3 billion, up from $659.9 billion as of September 30, 2011, attributed to market appreciation, partly offset by net new outflows. However, AUM remained flat on a year-over-year basis, as market depreciation of $27.4 billion offset the net new flows of $17.6 billion and $12.5 billion from acquisitions.
Simple monthly average AUM during the quarter decreased 6% sequentially and increased 3% y/y to $675 billion. Net new outflows were $15.6 billion versus inflows of $3.1 billion in the prior quarter and $3.2 billion in the prior-year quarter.
Earnings Recap
Franklin’s fiscal first-quarter 2012 earnings of $2.20 per share were above the Zacks Consensus Estimate of $2.10 per share. Moreover, the results outpaced earnings of $1.88 per share in the prior quarter, but lagged earnings of $2.23 per share reported in the prior-year quarter. Results improved due to lower operating expenses and higher AUM on a sequential basis. However, lower top-line growth was on the downside.
Our Take
Among Franklin’s peers-Invesco Ltd. (IVZ) is expected to report month-end AUM for the month of February 2012, earlier next week.
Franklin's global footprint is an exceptionally favorable strategic point as its AUM is well diversified. The company is also poised to benefit from its strong balance sheet. Further, the company’s completed acquisitions in calendar year 2011 are expected to strengthen its financials. However, the regulatory restrictions and sluggish economic recovery could mar the AUM growth while increasing its costs.
Franklin currently retains its Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. Considering the company’s business model and fundamentals, we have a long-term “Neutral” recommendation on the stock.
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