Franklin Resources was introduced in post on the beginning of March (find out more). Since that time there was a nice rally from around $36 to around $41. After weak financial results share price dropped again to around $36. Is it a good time to buy? Company is less than 10% above investable level.

First we have to update fundamentals and look at Q2 results. Diluted EPS was at $0.61 and if we multiply it by 4 it gives around $2.4, which is P/E (not adjusted for cash) at 15, so nothing special, but as company has around 7b net cash then P/E cash adjusted is around 10, so fairly cheap.

In Q2 2016 company repurchased 9.6m shares so return to shareholders through buyback was 1.6% (in single quarter) + dividend 0.5% = 2% in quarter, decent result.

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The main problem are declining assets under management:

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Nevertheless I see some positive signs. Firstly pace of decline is slower and secondly AuM at the end of April rose, which is a good sign. Bad sign is that there were outflows (growth is due to appreciation of assets).

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Generally if we look on share price performance we can see a high correlation with EM. From the beginning of the year commodities are good performing and so are emerging markets. The main case it whether it is a new trend or just correction in long term declining trend. On the other hand business is quite cyclical and if it is some bottom then valuation is very tempting.

Summing up, Franklin Resources is not expensive company, but it is hard to say whether negative business trends are changing or it is just a one-off growth in AuM. It is also worth to see how BEN is underperforming TROW – historically there was a strong correlation and maybe it is high time to narrow a gap…