Franklin Reports Higher August AUM - Analyst Blog

Franklin Resources Inc. (BEN) reported on Thursday that the preliminary month-end assets under management (AUM) by its subsidiaries came in at $600.4 billion for August, slightly down from $602.9 billion as of July 31, 2010. AUM improved 21.1% from $495.7 billion on a year-over-year basis.

At the end of the month, total equity assets were $245.4 billion, down 3.2% sequentially from $253.5 billion but up 4.5% from $234.9 billion on a year-over-year basis. Total fixed income assets were $242.6 billion, up 2.6% from $236.4 billion as of July 31, 2010, and up 51.6% from $160.0 billion as of August 31, 2009.

Franklin recorded $105.3 billion in hybrid assets compared with $106.5 billion as of July 31, 2010 and $93.5 billion as of August 31, 2009. Cash management funds as reported were $7.1 billion, up from $6.1 billion in July 2010 but down from $7.3 billion in August 2009.

Franklin offers a wide range of investment products under equity, hybrid, fixed-income and cash management funds. Revenues depend principally on the level and relative mix of AUM.

During the first half of 2010, the recovery phase of the global economic recession was in sight. With a continuous upswing in market conditions, Franklin’s AUM and fee revenues improved steadily.

As of June 30, 2010, Franklin reported AUM of $570.5 million, up 26.4% on a year-over-year basis, primarily due to positive net new flows of $62.7 billion and market appreciation of $59.3 billion. The improvement took place in both equity and fixed-income products due to higher sales and lower redemptions on a year-over-year basis.

For the period ended June 2010, Franklin’s closest competitor BlackRock Inc. (BLK) reported AUM of $3.15 trillion, which more than doubled from $1.37 trillion in the prior-year quarter, substantially surpassing Franklin’s AUM.

We believe Franklin’s global footprint is favorable from a strategic perspective, since its AUM is well diversified. This will cushion the company, along with a strong balance sheet and ongoing cost control efforts undertaken by management.

However, Franklin is not immune to the volatile economic environment either; its revenues and AUM bear witness to its vulnerability. We believe that earnings for the second half of fiscal year 2010 are going to improve as the environment for asset managers is gradually recovering with reviving demand from recuperating markets.

Franklin shares are maintaining a Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation. Considering the company’s business model and fundamentals, we have a long-term Neutral recommendation on the stock as well.