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Franklin (BEN) Aided by Strategic Buyouts Amid Rising Expenses
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Franklin Resources, Inc. (BEN - Free Report) continues to focus on growing its presence through strategic acquisitions. The company’s efforts to diversify its business into different asset classes will propel the growth of its assets under management (AUM). However, high reliance on investment management fees for the bulk of its revenues makes it vulnerable to market fluctuations. Also, rising expenses might limit the bottom-line growth to some extent.
In the past few years, Franklin has grown through acquisitions. In May 2023, the company entered into a strategic partnership with Power Corporation of Canada and Great-West Lifeco, Inc. to acquire Putnam Investments to accelerate its growth in the retirement markets. This also adds scale and efficiency to the mutual fund platform.
Additionally, in November 2022, the company closed the acquisition of Alcentra, one of the largest European alternative credit managers. In April 2022, it completed the acquisition of Lexington, boosting its alternative asset offerings. These acquisitions will support the company in improving and expanding its alternative investments and multi-asset solutions platforms.
Franklin’s AUM recorded a compound annual growth rate (CAGR) of 23.3% over the last four fiscal years (ended fiscal 2022). While AUM declined in fiscal 2022 on a volatile landscape, the trend reversed in the first six months of fiscal 2023, with the company witnessing a rise in AUM on the back of decent market performance. Also, it is making efforts to diversify its business into asset classes that are seeing growing client demand, like alternative asset classes. This will likely propel AUM growth and top-line expansion in the upcoming period. We expect AUM to reflect a CAGR of 5.5% by 2025.
Franklin holds organic growth prospects in several areas. The company’s relatively strong distribution platform has increased diversification inflows across funds, vehicles and asset classes, as well as key business growth. It has been an early entrant in many foreign markets, enjoying a first-mover advantage. Growth prospects bode well for the firm since it continues to diversify its business to muster broader sources of revenue.
However, Franklin’s expenses witnessed a CAGR of 15.7% over the last four years (ended fiscal 2022). Though expenses declined in fiscal 2022, it recorded a rising year-over-year trend in second-quarter fiscal 2023. Going forward, any increase in variable expenses due to market uncertainties and investment in technology-related distribution opportunities will limit bottom-line growth.
Investment management fees are Franklin’s biggest source of revenues, comprising about 82% for second-quarter fiscal 2023 and depending on the level and relative mix of its AUM, as well as the types of services provided. Despite a diversified character, the company’s AUM is exposed to market fluctuations, foreign-exchange translations, regulatory changes, or a sudden slowdown in overall business activities. Such changes in AUM are likely to hurt investment management fees and adversely impact Franklin’s financials.
In the first six months of fiscal 2023, the company recorded a decline in investment management fees year over year. We project total investment management fees to decline 9.5% this year.
In April 2018, the company announced a repurchase authorization of up to 80 million shares. It repurchased 0.6 million shares for $17.8 million during the first six months of fiscal 2023. As of Mar 31, 2023, 23.7 million shares remain under the current authorization. Though Franklin’s capital-deployment activities are commendable, its volatile earnings performance and an unfavorable debt/equity ratio compared with that of the broader industry reflect the fact that these capital-deployment activities are likely to not be sustainable in the future.
Shares of this Zacks Rank #3 (Hold) company have gained 0.2% compared with the industry’s 4% rise over the past six months.
The Zacks Consensus Estimate for JHG’s 2023 earnings has been revised 6.6% upward over the past 60 days. The stock has gained 13.9% over the past six months.
The consensus estimate for MRCC’s fiscal 2023 earnings has been revised 9.5% upward over the past 60 days. The company’s share price has increased 11.2% over the past three months.
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Franklin (BEN) Aided by Strategic Buyouts Amid Rising Expenses
Franklin Resources, Inc. (BEN - Free Report) continues to focus on growing its presence through strategic acquisitions. The company’s efforts to diversify its business into different asset classes will propel the growth of its assets under management (AUM). However, high reliance on investment management fees for the bulk of its revenues makes it vulnerable to market fluctuations. Also, rising expenses might limit the bottom-line growth to some extent.
In the past few years, Franklin has grown through acquisitions. In May 2023, the company entered into a strategic partnership with Power Corporation of Canada and Great-West Lifeco, Inc. to acquire Putnam Investments to accelerate its growth in the retirement markets. This also adds scale and efficiency to the mutual fund platform.
Additionally, in November 2022, the company closed the acquisition of Alcentra, one of the largest European alternative credit managers. In April 2022, it completed the acquisition of Lexington, boosting its alternative asset offerings. These acquisitions will support the company in improving and expanding its alternative investments and multi-asset solutions platforms.
Franklin’s AUM recorded a compound annual growth rate (CAGR) of 23.3% over the last four fiscal years (ended fiscal 2022). While AUM declined in fiscal 2022 on a volatile landscape, the trend reversed in the first six months of fiscal 2023, with the company witnessing a rise in AUM on the back of decent market performance. Also, it is making efforts to diversify its business into asset classes that are seeing growing client demand, like alternative asset classes. This will likely propel AUM growth and top-line expansion in the upcoming period. We expect AUM to reflect a CAGR of 5.5% by 2025.
Franklin holds organic growth prospects in several areas. The company’s relatively strong distribution platform has increased diversification inflows across funds, vehicles and asset classes, as well as key business growth. It has been an early entrant in many foreign markets, enjoying a first-mover advantage. Growth prospects bode well for the firm since it continues to diversify its business to muster broader sources of revenue.
However, Franklin’s expenses witnessed a CAGR of 15.7% over the last four years (ended fiscal 2022). Though expenses declined in fiscal 2022, it recorded a rising year-over-year trend in second-quarter fiscal 2023. Going forward, any increase in variable expenses due to market uncertainties and investment in technology-related distribution opportunities will limit bottom-line growth.
Investment management fees are Franklin’s biggest source of revenues, comprising about 82% for second-quarter fiscal 2023 and depending on the level and relative mix of its AUM, as well as the types of services provided. Despite a diversified character, the company’s AUM is exposed to market fluctuations, foreign-exchange translations, regulatory changes, or a sudden slowdown in overall business activities. Such changes in AUM are likely to hurt investment management fees and adversely impact Franklin’s financials.
In the first six months of fiscal 2023, the company recorded a decline in investment management fees year over year. We project total investment management fees to decline 9.5% this year.
In April 2018, the company announced a repurchase authorization of up to 80 million shares. It repurchased 0.6 million shares for $17.8 million during the first six months of fiscal 2023. As of Mar 31, 2023, 23.7 million shares remain under the current authorization. Though Franklin’s capital-deployment activities are commendable, its volatile earnings performance and an unfavorable debt/equity ratio compared with that of the broader industry reflect the fact that these capital-deployment activities are likely to not be sustainable in the future.
Shares of this Zacks Rank #3 (Hold) company have gained 0.2% compared with the industry’s 4% rise over the past six months.
Image Source: Zacks Investment Research
Stocks Worth a Look
A couple of better-ranked stocks from the investment management sector are Janus Henderson Group (JHG - Free Report) , and Monroe Capital (MRCC - Free Report) , each currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for JHG’s 2023 earnings has been revised 6.6% upward over the past 60 days. The stock has gained 13.9% over the past six months.
The consensus estimate for MRCC’s fiscal 2023 earnings has been revised 9.5% upward over the past 60 days. The company’s share price has increased 11.2% over the past three months.