BEN - Frankiln Resources Inc.

[LowIQinvestor]

Highly recommend listening to the earnings call: Mgmt are excellent operators

http://investors.franklinresources.com/investor-relations/events-presentations/event-details/2015/Q4-2015-Franklin-Resources-Earnings-Conference-Call-/default.aspx

 

Presentation:

http://s2.q4cdn.com/329803744/files/doc_presentations/2015/Q4/FranklinResources4Q15.pdf

 

They bought back $500M worth of stock @$42 (most since 2008), are trading at 5.5x operating income and now have $10.6B in cash on the BS. And the markets have rebounded since they reported so AUM will be up.

[LowIQinvestor]

AUM up about 4% in October.

 

http://news.franklinresources.com/news-center/press-releases/press-release-details/2015/Franklin-Resources-Inc-Announces-Month-End-Assets-Under-Management-1192015/default.aspx

[LowIQinvestor]

Franklin Resources Inc.: A Simple Valuation Mode

http://seekingalpha.com/article/3742196-franklin-resources-inc-a-simple-valuation-model

[Nelson]

When I model this company I don't discount the overseas cash whatsoever. At this point, it's not a prudent move for management to bring that cash back anyway. Not only would BEN be hit with taxes, but U.S. Dollar strength means the overseas cash will likely be worth more in a few years if they do nothing with it but stick it in the bank. The time to repatriate cash is when the dollar is weak, not when it's strong.

 

Besides, it's not a stretch to think that a company with such a global reach can find international acquisition opportunities. There are thousands of asset managers out there.

 

[LowIQinvestor]

When I model this company I don't discount the overseas cash whatsoever. At this point, it's not a prudent move for management to bring that cash back anyway. Not only would BEN be hit with taxes, but U.S. Dollar strength means the overseas cash will likely be worth more in a few years if they do nothing with it but stick it in the bank. The time to repatriate cash is when the dollar is weak, not when it's strong.

 

Besides, it's not a stretch to think that a company with such a global reach can find international acquisition opportunities. There are thousands of asset managers out there.

 

 

I agree with everything you stated.

 

What do you think it should be worth? Seems to trade at a 50% discount to other Asset Managers?

[LowIQinvestor]

Apparently no one ( the market) cares that they have close to $10B in net cash on the balance sheet. It is being treated like every other asset manager.

 

I'm a buyer. Which means next week it will get even cheaper

[LowIQinvestor]

I'm surprised the stock has fallen in lock-step with every other Asset Manager despite having $10 Billion in net cash.

 

Stock at $35 with $16 a share in cash on the balance sheet.

 

The stock market would have to implode in order for this price to make sense.

 

 

 

 

[Nelson]

I'm surprised the stock has fallen in lock-step with every other Asset Manager despite having $10 Billion in net cash.

 

Stock at $35 with $16 a share in cash on the balance sheet.

 

The stock market would have to implode in order for this price to make sense.

 

I agree it looks really attractive at today's levels. It must be getting killed because of all the high yield issues.

 

I have to do more work on it before I buy. Love the business and the margins it generates. I'm just scared the ETF revolution damages it to the point of it becoming a value trap. I'll post more thoughts in a couple of days once I read a few of the SEC filings.

[johnny]

Is there a similarly sized/positioned competitor that you can pair this with to try and mitigate the ETF/robovisor ~revolution~ risk?

[LowIQinvestor]

Is there a similarly sized/positioned competitor that you can pair this with to try and mitigate the ETF/robovisor ~revolution~ risk?

 

I guess you could short Legg Mason (LM)? Which trades around a 13 PE on 2016 earnings (vs BEN at around 8).  It is a much smaller company than BEN. BEN could buy two Legg Masons and still have around $2B in net cash left over.

 

Call me crazy but I think the ETF and robo-advisor craze is a little long in the tooth.

[BTShine]

It does feel like the assets under management of a BEN are somewhat sticky.  I think people's new investable funds are likely to continue going into robo-advisors and low-cost etfs (along with traditional mutual funds), but it doesn't seem like the AUM for a company like BEN will just walk away.  Transferring existing investments from one firm to another is considered a hassle for most people.

[LowIQinvestor]

Is there a similarly sized/positioned competitor that you can pair this with to try and mitigate the ETF/robovisor ~revolution~ risk?

 

I guess you could short Legg Mason (LM)? Which trades around a 13 PE on 2016 earnings (vs BEN at around 8).  It is a much smaller company than BEN. BEN could buy two Legg Masons and still have around $2B in net cash left over.

 

Call me crazy but I think the ETF and robo-advisor craze is a little long in the tooth.

 

BEN at around an eight PE ---maybe less. ( no clue why the smiley face)

 

If I were the Johnson family I'd be tempted to just take it private.

 

 

[LowIQinvestor]

20% dividend raise just announced

 

SAN MATEO, CA -- (Marketwired) -- 12/15/15 -- Franklin Resources, Inc. (the "Company") (NYSE (NYX): BEN) announced a quarterly cash dividend in the amount of $0.18 per share payable on January 13, 2016 to stockholders of record holding shares of common stock at the close of business on December 29, 2015. The quarterly dividend of $0.18 per share represents a 20% increase over the dividends paid for the prior and the same quarter last year. The Company has raised its dividend every year since 1981.

[johnny]

Is there a similarly sized/positioned competitor that you can pair this with to try and mitigate the ETF/robovisor ~revolution~ risk?

 

BEN could buy two Legg Masons and still have around $2B in net cash left over.

 

 

Given my record with shorts this is exactly how my brilliant pair trade would blow up.

[BG2008]

I think my concern with BEN is that if we go into another crisis and the S&P gets chop by 30-40% coupled with redemptions.  BEN's operating and net income can very easily drop by half like it did during 2008/2009.  You then own BEN at 15x P/E net of cash.

 

BEN ability to generate a profit is dependent on the S&P and has more embedded cyclicality then we think.  It's obvious worth noting that despite run ups in the S&P, their equity AUM has not increased that much from $247bn in 2009 to $312bn in 2014.  This likely imply that they've been losing AUM to Vanguard, Wealthfront etc.  Their fixed income business is another $312bn and supposedly they have a ton of exposure to high yield.  We all know that market is currently imploding. 

 

Barron's pointed out that BEN also owns some of their own buildings which in itself is worth a couple billion. 

 

Totally understand that what we are buying are certainly cheap optically and the asset generates a ton of cash without much cap ex requirements.  But the business certainly does not have much moat.   

[Spekulatius]

Seems like BEN is an cigar butt that still generates a lot of cash for the time being. I do think it is correct that the asset management business is under siege from low cost providers offering index funds and ETF. Better performance (on average) and lower cost = no brainer from a customers perspective.

[LowIQinvestor]

I think my concern with BEN is that if we go into another crisis and the S&P gets chop by 30-40% coupled with redemptions.  BEN's operating and net income can very easily drop by half like it did during 2008/2009.  You then own BEN at 15x P/E net of cash.

 

Barron's pointed out that BEN also owns some of their own buildings which in itself is worth a couple billion.   

 

I understand your concern to some extent.  But that would be the case with nearly every stock if we were headed into a massive downturn in the economy?

 

Let's run through your scenario of a stock market crash for a minute:

BEN's earnings drop by 50% --- $1B

Let's assign a really low multiple to those earnings: 6 PE?

So company is valued at $6B

But they have $9.8B in net cash

So market cap in the neighborhood of $16B

 

Current Market Cap is $21B

 

So we are looking at 23% downside in that horrendous scenario.

 

 

 

 

 

[BG2008]

I think my concern with BEN is that if we go into another crisis and the S&P gets chop by 30-40% coupled with redemptions.  BEN's operating and net income can very easily drop by half like it did during 2008/2009.  You then own BEN at 15x P/E net of cash.

 

Barron's pointed out that BEN also owns some of their own buildings which in itself is worth a couple billion.   

 

I understand your concern to some extent.  But that would be the case with nearly every stock if we were headed into a massive downturn in the economy?

 

Let's run through your scenario of a stock market crash for a minute:

BEN's earnings drop by 50% --- $1B

Let's assign a really low multiple to those earnings: 6 PE?

So company is valued at $6B

But they have $9.8B in net cash

So market cap in the neighborhood of $16B

 

Current Market Cap is $21B

 

So we are looking at 23% downside in that horrendous scenario.

 

You're right.  My simple response is that I'll wait till a market crash to buy the Okatrees of the world.  They tend to do better with distress.  Shares should trade down while their earnings will actually improve.  There is a price where BEN is "stupidly cheap" as well.  Just not sure that we're there yet. 

 

There are other business where the market multiple goes down but their earnings power don't get cut in half.  My concern is that if Ben is a cigar butt, it may not recover coming out the other side.  As we've seen that Ben clearly did not recover much of the equity mutual funds despite a 3x upturn in the S&P since 2009. 

[Tim Eriksen]

There are other business where the market multiple goes down but their earnings power don't get cut in half.  My concern is that if Ben is a cigar butt, it may not recover coming out the other side.  As we've seen that Ben clearly did not recover much of the equity mutual funds despite a 3x upturn in the S&P since 2009.

 

It seems to me it is a misuse of the term to call BEN a cigar butt. 

I would also contend it is improper to compare the growth in their equity funds with the S&P.  You should compare the domestic funds with the S&P, but emerging markets with something like EEM.         

[LowIQinvestor]

There are other business where the market multiple goes down but their earnings power don't get cut in half.  My concern is that if Ben is a cigar butt, it may not recover coming out the other side.  As we've seen that Ben clearly did not recover much of the equity mutual funds despite a 3x upturn in the S&P since 2009.

 

It seems to me it is a misuse of the term to call BEN a cigar butt. 

I would also contend it is improper to compare the growth in their equity funds with the S&P.  You should compare the domestic funds with the S&P, but emerging markets with something like EEM.         

 

I concur! This is no cigar butt.

I have found management to be very astute and thoughtful when it comes to capital allocation. My guess is that they buy back a couple percent of the business in the current quarter. Most likely no special dividend.

 

Thought this article was somewhat interesting in thinking about downside protection:

http://seekingalpha.com/article/3756736-franklin-resources-what-a-stagnant-business-could-look-like?page=2

[wknecht]

I'm a nube to BEN. Is no one worried about a run?  On the bond side, my understanding is they have a lot of oil (not the super majors) and EM. 

[LowIQinvestor]

Can anyone paraphrase this article? I see that it mentions BEN---Thanks

 

A Bullish Forecast for Asset Managers’ Shares

BlackRock, T. Rowe Price, and other money managers may rebound in 2016. Time to reconsider their stocks

http://www.barrons.com/articles/bullish-on-asset-managers-shares-1450511088?mod=yahoobarrons&ru=yahoo

[LowIQinvestor]

Can anyone paraphrase this article? I see that it mentions BEN---Thanks

 

A Bullish Forecast for Asset Managers’ Shares

BlackRock, T. Rowe Price, and other money managers may rebound in 2016. Time to reconsider their stocks

http://www.barrons.com/articles/bullish-on-asset-managers-shares-1450511088?mod=yahoobarrons&ru=yahoo

This provides a short summary:

 

Also, this transaction give a private market value comp for BEN.

http://www.wsj.com/articles/nomura-to-buy-41-stake-in-american-century-investments-1450707081

[LowIQinvestor]

Can anyone paraphrase this article? I see that it mentions BEN---Thanks

 

A Bullish Forecast for Asset Managers’ Shares

BlackRock, T. Rowe Price, and other money managers may rebound in 2016. Time to reconsider their stocks

http://www.barrons.com/articles/bullish-on-asset-managers-shares-1450511088?mod=yahoobarrons&ru=yahoo

This provides a short summary:

 

Also, this transaction give a private market value comp for BEN.

http://www.wsj.com/articles/nomura-to-buy-41-stake-in-american-century-investments-1450707081

Sorry, Link to Barron's summary:

http://seekingalpha.com/news/2996076-barrons-asset-managers-offer-value

[Jurgis]

Can anyone paraphrase this article? I see that it mentions BEN---Thanks

 

A Bullish Forecast for Asset Managers’ Shares

BlackRock, T. Rowe Price, and other money managers may rebound in 2016. Time to reconsider their stocks

http://www.barrons.com/articles/bullish-on-asset-managers-shares-1450511088?mod=yahoobarrons&ru=yahoo

 

You know that you can access Barron's articles (as well as WSJ) through Google backdoor, yes?