Franklin Resources: Not All Dips Should Be Bought

seekingalpha11-24 12:03

Franklin’s acquisition spree hasn’t created much shareholder value at all.This leaves the manager exposed to a lot of headwinds.The stock isn’t quite cheap enough here. BalkansCat Franklin Resources...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/2485675147?lang=en_US&edition=fundamental","thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1152518454/image_1152518454.jpg","is_english":true,"pubTime":"2024-11-24 12:03","share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","id":"2485675147","market":"fut","top_or_hot":-1,"title":"Franklin Resources: Not All Dips Should Be Bought","media":"seekingalpha","content":"<div>\n<p>Franklin’s acquisition spree hasn’t created much shareholder value at all.This leaves the manager exposed to a lot of headwinds.The stock isn’t quite cheap enough here.   BalkansCat Franklin Resources...</p>\n\n<a href=\"https://seekingalpha.com/article/4739852-franklin-resources-not-all-dips-should-be-bought\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Franklin Resources: Not All Dips Should Be Bought</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nFranklin Resources: Not All Dips Should Be Bought\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-24 12:03 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4739852-franklin-resources-not-all-dips-should-be-bought><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Franklin’s acquisition spree hasn’t created much shareholder value at all.This leaves the manager exposed to a lot of headwinds.The stock isn’t quite cheap enough here.   BalkansCat Franklin Resources...</p>\n\n<a href=\"https://seekingalpha.com/article/4739852-franklin-resources-not-all-dips-should-be-bought\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4135","symbol_name":"资产管理与托管银行","start_time":0,"source_url":"https://seekingalpha.com/article/4739852-franklin-resources-not-all-dips-should-be-bought","article_id":"2485675147","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1152518454/image_1152518454.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2485675147","pubTimestamp":1732421037,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"and Could Have Second-Order Impacts Now, regardless of whether Mr. Leech is ultimately found guilty of preferential trade allocations, the reputational hit is not something Western will quickly recover from. Performance hasn’t been great either in recent years, as Leech’s decision to extend duration using derivatives , backfired. Thus, it really isn’t that surprising that institutional investors in Leech’s flagship funds are pulling out in droves. FTWhile the case for more Western outflows is probably well-understood at this point, BEN could still surprise negatively via second-order impacts. After a","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4135":"资产管理与托管银行","BK4585":"ETF&股票定投概念","BK4588":"碎股","BEN":"富兰克林资源"},"translate_title":"富兰克林资源：并非所有逢低都应该买入","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"BEN":0.9},"content_text":"Franklin’s acquisition spree hasn’t created much shareholder value at all.This leaves the manager exposed to a lot of headwinds.The stock isn’t quite cheap enough here.   BalkansCat Franklin Resources (NYSE:BEN), still about 40% owned by the founding Johnson family and managed by third-generation heiress Jenny Johnson, is a conventional investment manager trying to keep up with the times. Despite its legacy and the ~$1.7 trillion of assets it has built inorganically through the years, BEN remains at the wrong end of secular industry shifts, most notably from (higher-fee) active funds to (lower-fee) passives. There’s also a fairly serious idiosyncratic risk to account for in previously acquired fixed-income franchise, Western Asset Management Co (or ‘Western’), whose ‘star’ manager, Ken Leech, is currently the subject of investigations and suffering massive outflows as a result. To be clear, there are conventional asset managers, for instance, Invesco (IVZ), that have successfully ‘pivoted’ along with the industry, so BEN could well prove the market wrong at some point. For now, though, BEN hasn’t yet earned that credit, given the extent to which prior acquisitions have destroyed, rather than created shareholder value. On an earnings basis, the stock isn’t that cheap either relative to its fundamentals, and thus, I’d probably avoid bottom fishing here. Data by YChartsThe Big Western Overhang Remains… All things considered, fiscal Q4 2024 wasn’t actually that bad a quarter for BEN. The main issue was Western, which yet again accounted for the vast majority of quarterly “long-term” outflows at ~$37 billion, comprising ~$8 billion in August and a hefty ~$28 billion in September. BEN’s October asset disclosure showed a further ~$18 billion of Western redemptions, so clearly, we haven’t hit bottom just yet. Franklin ResourcesThe culprit here is Western’s fixed-income business and ongoing investigations surrounding former co-Chief Investment Officer Ken Leech. Recall that this issue was first raised in August, when BEN disclosed a ‘Wells Notice’ from the SEC (i.e., communication that Western is under investigation for potential violations). Today, parallel investigations are underway at three agencies (the DOJ, SEC, and CFTC), as well as internally, related to “certain tax trade allocations of treasury derivatives.” …and Could Have Second-Order Impacts Now, regardless of whether Mr. Leech is ultimately found guilty of preferential trade allocations, the reputational hit is not something Western will quickly recover from. Performance hasn’t been great either in recent years, as Leech’s decision to extend duration using derivatives (i.e., a bet on declining interest rates), backfired. Thus, it really isn’t that surprising that institutional investors in Leech’s flagship funds are pulling out in droves. FTWhile the case for more Western outflows is probably well-understood at this point, BEN could still surprise negatively via second-order impacts. After all, Western was the biggest part of the Legg Mason deal in 2020. BloombergFor one, subsequent outflows will only prove more challenging, particularly as we get into the less liquid parts of the bond portfolio. In the meantime, getting bogged down in addressing redemptions will also cost market share at a time when fixed income is seeing strong inflows. ReutersAs for the mid to long-term, it’s worth noting that these redemptions are coming out of funds with higher expense ratios, so addressing the fee deficit will no doubt be a future challenge as well. Per the quarterly call, management is also making “adjustments” to its existing economic arrangements. While there weren’t too many specifics, the mention of accommodating “a decline in the revenue and the operating income,” doesn’t bode well for synergies. Nor does management’s commitment to keep the investment team “in a good place,” which could entail an added P&L drag. Some Silver Linings in the Ex-Western Businesses… Western aside, BEN’s outlook is relatively mixed across its other strategies. Yes, the headline fee % compression has slowed in its recent quarter. But a closer look shows that a large chunk of this is down to higher performance fees which may not recur in future years, as well as higher shareholder servicing fees, rather than more predictable management fee income. Franklin ResourcesStill, management’s guide does call for a better fee % outlook (excluding performance fees), which implies the worst of its fee rate pressures from the recent Putnam acquisition and from Western outflows could soon be behind the company. Continued inflows into growth areas like retail accounts ($154bn), ETFs ($31bn), customized indexing ($10bn), and investment solutions ($89bn) should also help, even if they are coming off a much lower base. Franklin Resources…and Operating Efficiencies The other notable positive from BEN’s quarter was on the margin side, with its (adjusted) operating margin expanding to 26.3%. Driving this are cost efficiencies at Putnam, where, per management, synergies are running above target at over $150m. Assuming these cost benefits ‘stick’ and don’t come at the expense of revenues elsewhere, and with guidance also calling for a slightly higher fee % next quarter, the margin path looks upbeat near-term. Franklin ResourcesStill, the long term remains an issue. Recall that management has laid out a five-year target of >30% operating margins (about four percentage points above current levels), which could prove quite optimistic. For one, scaling through acquisitions, BEN’s go-to growth strategy, typically pressures margins for the first few years (even longer in the case of Western). Plus, there’s also no guarantee BEN’s nascent private markets franchise, a key part of the growth plan, will deliver on its lofty $100bn fundraising target. More Risk than Reward in Future M&A  More broadly, the key to BEN’s investment case is making its ‘growth by acquisition’ strategy work. On paper, the M&A playbook of buying smaller managers, consolidating assets, and then extracting efficiencies seems straightforward enough. In reality, however, BEN’s declining market cap over the last five years, despite spending billions on acquiring conventional asset managers like Western/Legg Mason in 2020 and Putnam Investments this year, as well as alternative managers like Lexington, is a testament to subpar capital allocation by this management team. Franklin ResourcesFrom here, BEN’s historical track record makes it hard to underwrite future M&A success. Never mind the fact that management intends to double down on more of the same over the mid-term. In sum, a deeper P/E discount to conventional asset managers that have more successfully deployed the M&A playbook, seems very warranted, in my view. Data by YChartsSumming Up  All things considered, BEN’s disappointing share price performance is justified by its challenged fundamentals. The idiosyncratic (Western) and secular (shift to lower fee passive funds) headwinds aren't going away either, so the road ahead won’t be any easier. Until BEN shows signs of turning things around, I won’t be chasing this dip – even at an optically cheap ~8x forward P/E multiple.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2485675147"}