Biggar Bets on Ben
06/09/2006 12:00 am EST
Standard & Poor’s is one of the leading research authorities on Wall Street. Franklin Resources, operating under the under the Franklin, Templeton, and Mutual Series names, is a leading asset manager. Here, S&P's Stephen Biggar looks at BEN, his "stock of the week."
"Asset-management outfit Franklin Resources (BEN NYSE) has a loyal following among its clients and the financial advisers who recommend and distribute its funds, reflecting its strong investment performance, broad product offerings, and multiple distribution channels. We expect the company to continue to gain market share aided by strong client inflows into its international and global product offerings.
"Franklin is one of the largest US money
managers, with $491.6 billion in assets under management at the end of the
second quarter of fiscal 2006. At the end of the second quarter, equity-based
investments accounted for 60% of assets under management; fixed-income
investments, 22%; hybrid/balanced funds, 17%; and money funds, 1%. Global equity
and fixed income accounted for about 47% of assets under management. We estimate
that about 25% of assets under management are from non-US
"We expect Franklin to benefit in fiscal 2007 (ending September) from strong net client inflows, prudent expense growth, and further appreciation in global equity markets. We believe that the company's broad product offerings, dominated by value and global investment strategies, have contributed to strong relative investment performance.
"The company's investment philosophy—which
we regard as conservative—
and focused on diversification have
contributed to what we view as superior investment performance. We anticipate
additional market-share gains and healthy client inflows given what we see as
consistently solid investment performance and excellent client
"We believe Franklin's broad product line makes it easy for investors to reallocate assets among funds (which is not the case at some smaller fund companies), contributing to increased client retention, in our opinion. Finally, we see investors favoring large asset-management companies like Franklin Resources that have broad product offerings and that have generally avoided regulatory issues.
"Franklin recently traded at about 16 times our fiscal 2007 EPS estimate, a significant discount to the company's peer group average, but somewhat above historical valuations achieved over the past decade. In our view, the shares should trade at a much higher multiple. We also view favorably its low debt, and think that increasing operating cash flows could be used to raise the dividend or repurchase additional shares. We reiterate our 5 STARS (strong buy) recommendation on the shares, based on strong growth in client assets in the March quarter and what we view as a compelling valuation."