Franklin's January AUM Perks Up

Franklin Resources Inc. (BEN - Analyst Report) declared preliminary assets under management (AUM) of $704.3 billion by its subsidiaries at the end of January 2012. The company’s results experienced a rise of 5.1% from $670.3 billion as of December 31, 2011 and up 3.4% from $681.0 billion as of January 31, 2011.

Month-end total equity assets came in at $288.2 billion, up 6.7% sequentially but down 4.2% 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 $309.9 billion, up 4.1% from $297.7 billion as of December 31, 2011, and significantly improved from $264.0 billion as of January 31, 2011. Of the total, tax-free assets accounted for only 25%, while the remaining 75% were taxable.

Franklin recorded $99.9 billion in hybrid assets, up 3.6% from $96.4 billion as of December 31, 2011, but down 8.2% from $108.8 billion as of January 31, 2011. Additionally, reported cash management funds were $6.3 billion, up from $6.0 billion recorded in the prior month, but down from $7.4 billion as of January 2011.

On a quarterly basis, as of December 31, 2011, total AUM was $670.3 billion, modestly 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% year over year 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 - Analyst Report) is expected to report its month-end AUM for the month of January 2012, later this 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. Moreover, the 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 and increase costs.

Franklin currently retains its Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. Furthermore, considering the company’s business model and fundamentals, we have a long-term “Neutral” recommendation on the stock.

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