Analyst Note| Greggory Warren, CFA |
There was little in narrow-moat-rated Franklin Resources' fiscal third-quarter results that would alter our long-term view of the firm, and we are leaving our $23 fair value estimate in place. The company closed out the June quarter with $622.8 billion in assets under management. Organic growth and market gains will probably be constrained in the near to medium term by the impact that the COVID-19 pandemic is likely to have on economic growth and the equity and credit markets. During the March quarter, Franklin lost close to 17% of its AUM due to market losses and outflows. While it gained some of this back during the June quarter, with AUM rising just over 7% as market gains offset continued outflows from operations, we envision a stand-alone Franklin generating negative 9%-11% organic growth for all of fiscal 2020 (albeit at the lower end of that range). The key unknown here is the level of merger-related outflows that might linger after Franklin closes the Legg Mason acquisition at the end of July.