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Franklin (BEN) Rides on Buyouts, AUM Amid Escalating Expenses
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Frankling Resources Inc. (BEN - Free Report) remains well-positioned for growth on the back of opportunistic acquisitions, a solid distribution platform and an organic growth strategy. However, a rising expense base and concentrated revenues from investment management fee are major woes.
Franklin has been growing through acquisitions. In January 2024, the company acquired Putnam Investments, a global asset management firm. This deal is expected to boost the company’s presence in the retirement space by enhancing its defined contribution asset under management (AUM) to over $100 billion. Further, in 2022, the company acquired Alcentra and Lexington.
Apart from these, numerous acquisitions undertaken in the past have deepened its presence in the separately managed account space and boosted the investment capabilities in private debt, real estate, hedge funds and private equity. These strategic efforts are likely to aid the company in enhancing and expanding its alternative investments and multi-asset solutions platforms.
Franklin’s AUM growth has been solid over the past years. While the metric dipped in fiscal 2022, it witnessed a five-year (2018-2023) compound annual growth rate (CAGR) of 18.7%. The uptrend persisted during the first half of fiscal 2024 as well. The company has been diversifying its business into asset classes with rising demand in order to gain market share. This is further going to aid AUM growth. A regional-oriented distribution model has improved its non-U.S. business with favorable net flows. Additionally, strategic buyouts keep bolstering the AUM balance. We project AUM to witness an 11.8% CAGR by fiscal 2026.
BEN’s organic growth strategy is demonstrated through its revenue growth. While revenues dipped in fiscal 2023, it experienced an 8% CAGR over the last four fiscal years (2019-2023). The uptrend continued in the first half of fiscal 2024. The company’s solid distribution platform led to increased diversification in flows across funds, vehicles and asset classes, as well as key business growth. The company has gained a first-mover advantage in several foreign markets. It continues business diversification efforts to expand revenue streams with a primary emphasis on fixed income, given a robust pipeline. Our estimates suggest revenues to rise 6.3%, 3.2% and 1.3% in fiscal 2024, fiscal 2025 and fiscal 2026, respectively.
Nevertheless, Franklin’s revenues are highly concentrated toward investment management fees (comprising 81.2% of the total revenues in the first half of fiscal 2024), which has been witnessing a volatile trend over the years. Investment management fees depend on the level and relative mix of its AUM alongside the types of services provided. The company’s AUM is susceptible to market fluctuations, foreign exchange translations, regulatory changes and subdued business activity across the firm. Though the company witnessed a decline in the metric in fiscal 2020 and fiscal 2023, it grew in fiscal 2021 and fiscal 2022. The growth in investment management fees was again experienced during the first half of fiscal 2024. Thus, fluctuations in AUM might adversely impact the metric, thus, hampering financials.
Additionally, a rising expense base remains a headwind for Franklin. While expenses decreased in 2022, the metric reflected a 12.5% CAGR over the last four years (ended fiscal 2023). While the trend reversed during the first half of fiscal 2024, overall expenses are likely to remain elevated on account of ongoing inflationary pressures, technological investments and rising headcount. We estimate total operating expenses to witness a 6.5% CAGR over the next three fiscal years.
Franklin currently carries a Zacks Rank #3 (Hold). Over the past six months, shares of the company have lost 23.1% against the industry’s growth of 7.3%.
The Zacks Consensus Estimate for BSIG’s current-year earnings has been revised 10% upward in the past 60 days. BrightSphere’s shares have gained 14.7% over the past six months.
The Zacks Consensus Estimate for JHG’s current-year earnings has been revised marginally upward in the past 30 days. Janus Henderson’s shares have risen 11.1% over the past six months.
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Franklin (BEN) Rides on Buyouts, AUM Amid Escalating Expenses
Frankling Resources Inc. (BEN - Free Report) remains well-positioned for growth on the back of opportunistic acquisitions, a solid distribution platform and an organic growth strategy. However, a rising expense base and concentrated revenues from investment management fee are major woes.
Franklin has been growing through acquisitions. In January 2024, the company acquired Putnam Investments, a global asset management firm. This deal is expected to boost the company’s presence in the retirement space by enhancing its defined contribution asset under management (AUM) to over $100 billion. Further, in 2022, the company acquired Alcentra and Lexington.
Apart from these, numerous acquisitions undertaken in the past have deepened its presence in the separately managed account space and boosted the investment capabilities in private debt, real estate, hedge funds and private equity. These strategic efforts are likely to aid the company in enhancing and expanding its alternative investments and multi-asset solutions platforms.
Franklin’s AUM growth has been solid over the past years. While the metric dipped in fiscal 2022, it witnessed a five-year (2018-2023) compound annual growth rate (CAGR) of 18.7%. The uptrend persisted during the first half of fiscal 2024 as well. The company has been diversifying its business into asset classes with rising demand in order to gain market share. This is further going to aid AUM growth. A regional-oriented distribution model has improved its non-U.S. business with favorable net flows. Additionally, strategic buyouts keep bolstering the AUM balance. We project AUM to witness an 11.8% CAGR by fiscal 2026.
BEN’s organic growth strategy is demonstrated through its revenue growth. While revenues dipped in fiscal 2023, it experienced an 8% CAGR over the last four fiscal years (2019-2023). The uptrend continued in the first half of fiscal 2024. The company’s solid distribution platform led to increased diversification in flows across funds, vehicles and asset classes, as well as key business growth. The company has gained a first-mover advantage in several foreign markets. It continues business diversification efforts to expand revenue streams with a primary emphasis on fixed income, given a robust pipeline. Our estimates suggest revenues to rise 6.3%, 3.2% and 1.3% in fiscal 2024, fiscal 2025 and fiscal 2026, respectively.
Nevertheless, Franklin’s revenues are highly concentrated toward investment management fees (comprising 81.2% of the total revenues in the first half of fiscal 2024), which has been witnessing a volatile trend over the years. Investment management fees depend on the level and relative mix of its AUM alongside the types of services provided. The company’s AUM is susceptible to market fluctuations, foreign exchange translations, regulatory changes and subdued business activity across the firm. Though the company witnessed a decline in the metric in fiscal 2020 and fiscal 2023, it grew in fiscal 2021 and fiscal 2022. The growth in investment management fees was again experienced during the first half of fiscal 2024. Thus, fluctuations in AUM might adversely impact the metric, thus, hampering financials.
Additionally, a rising expense base remains a headwind for Franklin. While expenses decreased in 2022, the metric reflected a 12.5% CAGR over the last four years (ended fiscal 2023). While the trend reversed during the first half of fiscal 2024, overall expenses are likely to remain elevated on account of ongoing inflationary pressures, technological investments and rising headcount. We estimate total operating expenses to witness a 6.5% CAGR over the next three fiscal years.
Franklin currently carries a Zacks Rank #3 (Hold). Over the past six months, shares of the company have lost 23.1% against the industry’s growth of 7.3%.
Image Source: Zacks Investment Research
Investment Management Stocks Worth Considering
Some better-ranked investment management stocks worth a look are BrightSphere Investment Group Inc. (BSIG - Free Report) and Janus Henderson Group plc (JHG - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.
The Zacks Consensus Estimate for BSIG’s current-year earnings has been revised 10% upward in the past 60 days. BrightSphere’s shares have gained 14.7% over the past six months.
The Zacks Consensus Estimate for JHG’s current-year earnings has been revised marginally upward in the past 30 days. Janus Henderson’s shares have risen 11.1% over the past six months.