Franklin Resources(US:BEN) ZACKSยท2024-06-13 13:47Core Viewpoint - Franklin Resources Inc. (BEN) is well-positioned for growth through acquisitions, a solid distribution platform, and an organic growth strategy, but faces challenges from rising expenses and concentrated revenues from investment management fees [1][5]. Acquisitions and Growth Strategy - The company has been actively growing through acquisitions, including the recent acquisition of Putnam Investments in January 2024, which is expected to enhance its defined contribution AUM to over $100 billion [1]. - Previous acquisitions, such as Alcentra and Lexington, have strengthened its presence in various investment sectors, including private debt and real estate, aiding in the expansion of alternative investments and multi-asset solutions [2]. Assets Under Management (AUM) Performance - Franklin's AUM has shown solid growth, with a five-year CAGR of 18.7% from 2018 to 2023, despite a dip in fiscal 2022 [3]. - The company is diversifying into asset classes with rising demand, which is expected to support AUM growth, projected to achieve an 11.8% CAGR by fiscal 2026 [3]. Revenue Growth and Diversification - The company has demonstrated organic growth through an 8% CAGR in revenues over the last four fiscal years (2019-2023), with continued growth in the first half of fiscal 2024 [4]. - Franklin's distribution platform has led to increased diversification across funds and asset classes, with a focus on fixed income to expand revenue streams [4]. Revenue Concentration and Expense Challenges - A significant portion of Franklin's revenues (81.2% in the first half of fiscal 2024) comes from investment management fees, which are subject to volatility due to market fluctuations and other factors [5]. - The company has experienced a 12.5% CAGR in expenses over the last four years, with ongoing inflationary pressures and rising headcount expected to keep expenses elevated, projected to grow at a 6.5% CAGR over the next three fiscal years [6].