Franklin Resources Inc. (BEN) declared preliminary assets under management (AUM) of $735.8 billion by its subsidiaries for the end of May. Results were up 0.4% from $703.5 billion as of April 30, 2011 and 28.5% from $572.7 billion as of May 31, 2010.
At the end of May, total equity assets came in at $316.4 billion, down 1.5% sequentially, but up 31.2% 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 $296.4 billion, up 2.7% from $288.5 billion as of April 30, 2011 and 33.5% from $222.0 billion as of May 31, 2010. Of the total, tax-free assets accounted for only 23%, while the remaining 77% were taxable.
Franklin recorded $116.4 billion in hybrid assets, slightly down from $116.7 billion as of April 30, 2011 and up 13.1% from $102.9 billion as of May 31, 2010. Cash management funds as reported were $6.6 billion, in line with April 2011 but down from $6.7 billion as of May 2010.
On a quarterly basis, AUM increased from $586.8 billion as of March 31, 2010 due to higher inflows and market appreciation. Simple monthly average AUM during the quarter inched up 5.0% sequentially and 22.0% year over year to $687.2 billion. At the end of the quarter, net new flows were $8.4 billion versus $3.2 billion in the prior quarter and $17.4 billion in the prior-year quarter.
Earnings Recap
Franklin’s second-quarter 2011 earnings of $2.25 per share outpaced the Zacks Consensus Estimate of $2.00. Results reflected strong growth in revenue and higher AUM, partially offset by increased operating expenses. Moreover, the results outshined the earnings of $1.55 per share in the prior-year quarter and $2.23 per share in the prior quarter.
Our Take
Franklin’s global footprint is an exceptionally favorable strategic point, since its AUM is well diversified. This, coupled with a strong balance sheet is expected to cushion the company. However, Franklin is not immune to the volatile economic environment, which has been made worse by the costly regulatory environment. Besides, the regulatory restrictions could negatively affect the company’s AUM and increase its costs.
Currently, Franklin retains a Zacks #2 Rank, which translates to a short-term Buy rating. Also, considering the fundamentals, we maintain our long-term Outperform rating on the stock. However, Franklin’s peer – Invesco Ltd. (IVZ) retains a Zacks #3 Rank (a short-term Hold rating).
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