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Franklin Resources, Inc. Posted By : admin
Posted On : Friday, December 12, 2014
Company Name : Franklin Resources, Inc. Investment Range : Long
Ticker : NYSE:BEN M.Cap.Range : Large-cap
Country : US Stock Price : 56.39
Description :        

Franklin Resources, Inc (BEN US)

Business Description

Franklin Resources is a holding company which together with its subsidiaries operates as Franklin Templeton Investments. They provide investment services for individual and institutional investors. The company's funds are marketed under the Franklin, Templeton, Mutual Series, Bissett, Fiduciary Trust, Darby, Balanced Equity Management and K2 brand names.

They generate about two third of revenues from Investment management services. Management fee on an account varies with the types of services that company provides for the account, among other things. Investment management services include services to managed accounts for which BEN have full investment discretion, and to advisory accounts for which they have no investment discretion.

After investment management fees, BEN earns 30% of revenues by providing sales and distribution services. Co's registered open-end mutual funds and certain other products generally pay distribution fees in return for sales, distribution and marketing efforts on their behalf.

Industry Overview

The financial services industry is a highly competitive global industry. According to data sourced from the Investment Company Institute as of June 30, 2014, there were approximately 7,800 registered open-end mutual funds whose shares were offered to the public in the U.S. and approximately 70,200 registered open-end mutual funds whose shares were offered to the public outside the U.S., in each case excluding exchange-traded funds. Some of the competitors include Invesco, Blackrock.            

Major Shareholders

  • Promoters/Insiders hold 37%, with top 2 holders being from promoter group
  • MFS Investment Management 5.63%

Positives

  • Steady Investment management fee
  • BEN has reduced shares outstanding at compounded rate of 2% over last 5 year period. BEN has been really opportunistic in terms of share repurchase and has increased the pace when the price has witnessed pressure.
  • High switching costs for customers. I believe there is certain degree of stickiness with respect to assets under management. These tend to remain with the fund houses until and there is specific requirement for liquidity from the owners/unit holders.
  • Intangible assets in terms of being a global brand (good brand value because of long history and performance) and having a global presence
  • Good performance in long term asset management. With 91% of long term Fixed income portfolio being in top 2 peer Group Quartiles (top 50%) performance for 10 year period, the number stood at 77% for Long term Equity & Hybrid portfolio. Overall, 84% of Long term of Assets stood in Top 2 Peer group quartiles."

Company Negatives

  • High beta company
  • In case there is fall in markets due to any reason this would lead to outflows/redemptions (and also decrease in AUM). This would lead to decrease in asset management fees. Essentially there is a significant variable (markets) which is not in the hands of company and it will have large impact on numbers (and stock price)
  • AUM distribution is skewed towards retail 75%, retail investors are not considered to be as sticky compared to institutional investors.
  • Industry experiencing a decline in the Investment management fee in the recent years.

Summary

Though the valuations look reasonable, outlook for asset managers (specially BEN which have 40% in fixed income) does not look bright. Also, find it to be high beta. Any correction in market will lead to severe corection in the stock price.

 
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