On Monday, Franklin Resources Inc. (BEN) declared preliminary assets under management (AUM) of $659.9 billion by its subsidiaries for the end of September 2011. The results were down 7.9% from $716.4 billion as of August 31, 2011, but up 2.3% from $644.9 billion as of September 30, 2010.
Month-end total equity assets came in at $254.2 billion, down 11.4% sequentially and 7.1% year over year. 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 $297.7 billion, down 5.4% from $314.6 billion as of August 31, 2011 and up 17.3% from $253.8 billion as of September 30, 2010. Of the total, tax-free assets accounted for only 24%, while the rest 76% were taxable.
Franklin recorded $101.3 billion in hybrid assets, down 6.0% from $107.8 billion as of August 31, 2011 and 8.6% from $110.8 billion as of September 30, 2010. Cash management funds as reported were $6.7 billion, down from $7.2 billion recorded in August 2011 and up from $6.6 billion as of September 2010.
On a quarterly basis, as of June 30, 2011, total AUM was $734.2 billion, up from $703.5 billion as of March 31, 2011 and from $570.5 billion as of June 30, 2010, driven by net new flows and market appreciation. During the quarter, simple monthly average AUM inched up 6.0% sequentially and 25.0% year over year to $726.7 billion. At the end of the quarter, net new flows were $21.7 billion versus $8.4 billion in the prior quarter and $18.8 billion in the prior-year quarter.
Estimate Revision Trends
Franklinis expected to release its fourth-quarter and fiscal 2011 earnings on October 27, 2011. Over the last 30 days, 6 out of the 13 analysts covering Franklin have lowered their estimates for the fourth quarter, while one moved in the opposite direction. Furthermore, for fiscal 2011, 6 out of 15 analysts have lowered their estimates, while one upward revision was witnessed over the last 30 days.
Currently, the Zacks Consensus Estimate for the fourth quarter is operating earnings of $2.16 per share, a surge of 31.10% from the year-ago quarter. Moreover, the Zacks Consensus Estimate for fiscal 2011 is operating earnings of $8.83 per share, up 39.49% from the prior year.
Furthermore, over the last 30 days, operating earnings estimate for the fourth quarter and fiscal 2011 have declined by 10 cents and 9 cents per share, respectively.
Our Take
Franklinis growing strategically and expanding its foothold. During the course of the calendar year 2011, the company entered into a new strategic relationship with (Telegis) Capital Management, acquiring a 20% equity stake. This company’s experience in commodities, managed futures, and hedge fund replication ideally balances the existing alternative offerings of Franklin. Furthermore, Franklin completed the acquisition of Rensburg Fund Management, a UK equity specialist with about $1.5 billion in AUM in January 2011. The Rensburg acquisition allows the company to diversify product offerings in key markets. Moreover, Franklin’s acquisition of Balanced Equity Management in July 2011 aims to mark its presence in the Australian market by providing best investment options to satisfy local investors' needs.
Franklin's global footprint is an exceptionally favorable strategic point as its AUM is well diversified. Moreover, a strong balance sheet and the recently completed acquisitions are expected to strengthen the financials of the company, going forward. However, the regulatory restrictions and turbulence in global markets, along with the sluggish economic recovery, could mar the AUM growth further and boost its costs.
Currently, Franklin retains a Zacks #3 Rank, which translates into a short-term Hold rating. Besides, considering the fundamentals, we are maintaining a long-term Neutral recommendation on the stock. Franklin’s peer – Invesco Ltd. (IVZ) retains a Zacks #4 Rank (a short-term Sell rating).
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