Franklin Resources Inc. (BEN), Large Cap AI Study of the Week

September 10, 2024

Weekly AI Pick from the S&P 500

Company Overview

Franklin Resources, Inc., operating under brand names like Franklin Templeton, Alcentra, and Legg Mason, is a global investment management organization managing approximately $1.4 trillion in assets. The company primarily generates revenue through investment management fees, which are influenced by the level and mix of assets under management (AUM) and the types of services provided. Franklin's asset management spans various classes, including fixed income, equity, alternatives, and multi-asset solutions. Recently, Franklin has agreed to acquire Putnam Investments, expected to close in the first quarter of fiscal year 2024, signaling potential growth in its asset base and service offerings.

Franklin's specialist investment managers, such as Benefit Street Partners and Brandywine Global, offer a wide range of products including mutual funds, closed-end funds, private funds, institutional separate accounts, and ETFs. The company serves retail, institutional, and high-net-worth clients globally. In addition to traditional investment products, Franklin is expanding into digital wealth management, distribution-related technology, and tailored investment programs to drive revenue growth. The company operates various sales channels and leverages global distribution capabilities, facilitated by both direct sales and intermediaries.

Operating in a highly competitive financial services sector, Franklin emphasizes innovation, investment performance, and strong distribution relationships. The company is subject to extensive regulation across multiple jurisdictions, including securities, privacy, and anti-corruption laws. Compliance with U.S. and non-U.S. sanctions programs, tax regimes, and other regulations is critical to avoid fines, sanctions, or reputational damage. Recent regulatory reforms focus on executive compensation, cybersecurity, ESG standards, and privacy laws, with significant compliance requirements extending through 2025. Additionally, global tax compliance is evolving, influenced by OECD initiatives and the implementation of a global minimum tax.

By the Numbers

Annual 10-K Report Summary (Fiscal Year 2023):

• Total AUM increased by 6% to $1,374.2 billion.
• Acquisition of Alcentra cost $594.1 million.
• Operating revenues declined by 5% to $7,849.4 million.
• Net income decreased by 32% to $882.8 million.
• Long-term inflows decreased by 20% to $254.9 billion.
• Long-term outflows decreased by 21% to $276.2 billion.
• Investment management fees decreased by 2%.
• Sales and distribution fees dropped by 15%.
• Shareholder servicing fees decreased by $40.3 million.
• Operating expenses rose by 4%.
• Derivative losses of $15.1 million in fiscal year 2023.
• Interest expenses rose by $25.5 million.
• Effective income tax rate for 2023 was 22.1%.

Quarterly 10-Q Report Summary (As of June 30, 2024):

• Total AUM surged by 20% to $1,646.6 billion since September 30, 2023.
• Operating revenues for the quarter increased by 8% to $2,122.9 million.
• Operating income declined by 29% to $222.5 million.
• Acquisition of Putnam Investments contributed to AUM growth.
• Long-term inflows for the quarter rose by 23% to $82.7 billion.
• Long-term outflows for the quarter increased by 28% to $85.9 billion.
• Investment management fees grew by 5% to $1,689.9 million.
• Operating expenses rose by 15% to $1,900.4 million.
• Net other income increased by 391% for the quarter.
• Dividend and interest income decreased slightly for the quarter but rose by $21.1 million for the nine months.
• Interest expenses significantly reduced due to the termination of a term loan.
• Investments held by CIPs generated gains of $37.6 million for the quarter.
• Effective income tax rates decreased to 22.7% for the quarter.