Legg Mason: Enormous Share Buyback And Normalizing Rates Fuel 65% Upside
Convex Strategies • 14 Comments
Convex Strategies • 14 Comments
Tue, Apr. 12, 7:34 AM
Fri, Apr. 8, 8:47 AM
- Acknowledging that Legg Mason (NYSE:LM) is likely to report a challenging quarter both on earnings and net flows, Credit Suisse says the stock at 7x cash EPS has already priced in the bad news.
- The team sees long-term net flows increasing significantly in coming quarters, and improving earnings visibility (currently impaired by one-time items surrounding acquisitions). The company has also just completed its debt raise and will be repurchasing about $135M of stock in Q2.
- Credit Suisse reiterates its Outperform rating and $49 price target (56% upside).
Thu, Apr. 7, 4:18 PM
- Pimco's Total Return Fund has made headlines for months over the fast pace of investor money exiting - a full $35B through the year ended February - but in percentage terms, writes Russel Kinnel, it places just 49% on the list of 12-month outflows from the Morningstar 500.
- Eighteen of the 500 posted outflows of at least 40% of assets, with 61% suffering 25% of more of exits, and 168 with 10% or more.
- If we were coming out a bad bear market, these sorts of redemptions would be expected, says Kinnel, but, in fact, they've occurred after a monster rally. Flowmageddon indeed.
- The simple answer: Low-cost ETFs have, for now, won the debate over active/passive, and even over index funds which offer similar cheap prices.
- Among the active managers monitoring: BEN, LM, JNS, IVZ, AB, AMG, FII, WDR, APAM, MN
Wed, Apr. 6, 9:20 AM
- Josh Brown's in the business. His take? "Literally nothing changes. Biggest impact is added disclosures on websites. Seriously."
- He continues: "No added fee breakdowns, no restrictions on proprietary schlock products, no limit on selling with conflicts ... The Street wins (again)."
- The Department of Labor helpfully put out this cheat sheet on how its final rules changed from what was initially proposed.
- The billing for these new rules was that a fiduciary standard would be imposed which would ultimately force the asset management industry away from the business of collecting commissions for moving products, and into more responsible fee generation based on total assets managed.
- Interested parties include: LPLA, RJF, TROW, BLK, WETF, BEN, AMP, LNC, MET, PRU, LM, WDR
Tue, Apr. 5, 1:23 PM
- The Department of Labor this week is expected to release final regulations requiring brokers to act with a fiduciary standard - that is act solely in the best interest of their client. Previously, recommendations only had to be "suitable" for clients - a less rigorous standard allowing excessive fees, and investments with hidden commissions.
- Investors now paying trading commissions will likely be moved into accounts where brokers collect fees based on AUM. Popular, but costly products like variable annuities, commodity pools and non-tradable REITs might no longer find a home in retirement accounts. They'll be replaced with low-cost index funds.
- Whether it all works out for the little guy remains to be seen, but one thing is sure: Regulatory costs will be on the rise, something larger shops - think Merrill Lynch (NYSE:BAC) and Morgan Stanley (NYSE:MS) - are going to be able to absorb better than smaller players who are more reliant on commissions - think LPL Financial (NASDAQ:LPLA) and Raymond James (NYSE:RF).
- Big providers of index mutual funds and ETFs are winners as well - BlackRock (NYSE:BLK), T. Rowe Price (NASDAQ:TROW), and WisdomTree (NASDAQ:WETF) fit the bill. Active mutual fund houses like Franklin Resources (NYSE:BEN), Legg Mason (NYSE:LM), and Waddell & Reed (NYSE:WDR), not so much.
- Insurers who are big providers are variable annuities could also be pressured - Ameriprise (NYSE:AMP), Lincoln National (NYSE:LNC), MetLife (NYSE:MET), Prudential (NYSE:PRU).
- Now read: Congratulations To All The New Fiduciary FAs Out There: Financial Advisors' Daily Digest (April 4)
Mon, Apr. 4, 3:24 PM
- Just 19% of large-cap U.S. stock funds topped the S&P 500 in Q1, according to BAML's Savita Subramanian. It's the worst performance on that metric since the data started being tracked in 1998.
- The average large-cap fund trailed the S&P by 190 basis points, "a record spread of underperformance."
- It was the March rally that helped do managers in, says Subramanian, noting one-third of them beat the market in January, and 27% in February.
- "The lit match taken to active returns last quarter was likely the massive reversal – by the market, by sectors, by styles and by stocks – occurring within the quarter ... Crowded positions proved particularly damning in the Q1, with the 10 most crowded stocks underperforming the 10 most neglected stocks by almost 7 percentage points, an atypically high spread.”
- It's another rough session for traditional asset managers today: Franklin Resources (BEN -1.8%), Legg Mason (LM -4.1%), Gamco (GBL -1.3%), Janus (JNS -1.6%), Invesco (IVZ -1.1%), Affiliated Managers (AMG -2.2%), Waddell & Reed (WDR -3.3%)
- Now read: It's Official: The Good Times Are Over (April 4)
Tue, Mar. 22, 10:54 AM
- Legg Mason (NYSE:LM) has completed the public portion of its financing to fund the purchases of Clarion Partners and EnTrust Capital. The proceeds will be used along with a $500M draw on the company revolver for the buys, as well as to replenish cash on the balance sheet which had been used for the RARE deal late last year.
- Alongside, the company has reinstated its buyback program and expects to resume repurchases of $90M quarterly in FQ1 of 2017.
- Source: Press Release
Wed, Mar. 16, 9:21 AM
- After adjusting the current $32 stock price for $9 per share in present value benefits from a tax shield, the shares are trading at just 8x 2017 EPS - that's 35% below that of peers at 12x-13x, says Credit Suisse's Craig Siegenthaler, upgrading Legg Mason (NYSE:LM) to Outperform from Neutral. He lifts the price target to $49 from $39.
- Shares are up 1.9% premarket to $32.64.
Mon, Mar. 14, 11:03 AM
- While February trends were mixed, says Citigroup's William Katz, they did improve on a month-to-month basis, particularly for active funds. Though ETFs continue to gain market share, some equity funds were hit with sizable outflows.
- Affiliated Managers Group (AMG -2.5%) saw 28% annualized organic growth in February, says Katz, with AllianceBernstein (AB +0.8%), 26% growth, Federated Investors (FII -1.2%), 8% growth, BlackRock (BLK -1%), 5% growth, Schwab (SCHW -1.6%), 4% growth, T. Rowe Price (TROW -1.2%), 3% growth also posting solid long-term inflows.
- Vanguard had a solid month, with 9% growth.
- Meanwhile WisdomTree (WETF -1.5%) at 50%, Waddell & Reed (WDR +1.9%) at 37%, Invesco (IVZ -0.8%) at 11%, and Franklin Resources (BEN -0.9%) at 10% all saw deeply negative annualized loss rates.
- Katz reiterates Buy ratings on AB, Legg Mason (LM -2.1%), and OM Asset Management (OMAM -2.2%), but still sees "outsized downside" for WisdomTree and Waddell & Reed.
Fri, Mar. 11, 10:51 AM
- Citi's William Katz already had a Sell rating on the asset manager, but today puts Waddell & Reed (NYSE:WDR) on the U.S. Focus Sell List and cuts the price target to $17 from $18 (vs. current $25.23). Of note, says Katz:
- Relative fund performance analysis points to further deep attrition ahead
- Downbeat Feb. flow update reinforces outsized share loss theory
- Expectations of negative EPS revisions
- Outsized regulatory reform risk once DOL fiduciary rules get released
- Shares trade at inline valuation with peers despite fundamental issues
- Katz suggests instead moving money into Legg Mason (NYSE:LM) thanks to its superior strategic positioning, better flow outlook, more effective use of capital, and more attractive valuation.
- WDR is nevertheless higher by 2.9% today. LM is up 5.2%
Thu, Mar. 10, 8:40 AM
- LM Feb. 29 total AUM of $656.7B rises from $651.5B a month earlier.
- Equity AUM of $170.6B down from $172.5B.
- Fixed-income AUM of $367.4B up from $366.5B.
- Liquidity AUM of $118.7B up from $112.5B.
- Long-term net outflows were $4.1B, with equity outflows of $1.7B, and fixed-income outflows of $2.4B.
- Source: Press Release
Wed, Mar. 2, 10:38 AM
- According to Thompson Reuters, investors yanked more than $60B from mutual funds globally during January, the worst month outflows since September 2008. European funds fared the worst, with $47B of net outflows.
- The exits came, of course, as stock markets suffered their worst January in at least 20 years.
- Source: FT
- It's more bad news for asset managers like - Franklin Resources (NYSE:BEN), Legg Mason (NYSE:LM), Gamco (NYSE:GBL), Janus (NYSE:JNS), Invesco (NYSE:IVZ), T. Rowe Price (NASDAQ:TROW), AllianceBernstein (NYSE:AB), Affiliated Managers (NYSE:AMG) and Federated Investors (NYSE:FII) - but on the good side, the redemptions were met without any notable issues.
- “Fundamentally, the outlook is quite negative for the asset management industry in 2016," says Citi's Haley Tam.
Wed, Jan. 27, 9:23 AM
- Executives at Goldman Sachs gasped at a meeting last fall when the bank's asset management unit presented to them a new ETF with annual fees of just 0.09%.
- Story from the WSJ's Jason Zweig and Sarah Krouse
- It's not just the booming ETF industry where price wars abound, but mutual funds are getting less costly as well. The average fund tracked by Morningstar charges 1.07%, down from 1.22% in 2005.
- It's not all bad for mutual fund providers, who say they offer bargain prices on some products as "loss leaders" to get investors in the door where they can then be pitched more expensive funds and strategies. Still fund industry profit margins are slipping - 22% in Q3 from 25% a year earlier, according to DST Kasina.
- Industry comments: "We’re not surprised at all to see passive managers compete on fees because that’s their only differentiator,” says AlianceBernstein's (NYSE:AB) Chris Thompson, whose company has boosted marketing efforts for its actively-managed strategies.
- "We are in the business of increasing earnings,” says BlackRock's (NYSE:BLK) Mark Wiedman, whose firm's total stock market ETF now charges a barely-visible 0.03%. “Over time, the revenue growth from volume will outstrip the price cuts in these products.”
- Other interested parties: BEN, LM, GBL, JNS, IVZ, TROW, AMG, FII
Sat, Jan. 23, 10:58 AM
- Legg Mason (NYSE:LM) declares $0.20/share quarterly dividend, in line with previous.
- Forward yield 2.56%
- Payable April 11; for shareholders of record March 10; ex-div March 8.
Fri, Jan. 22, 7:54 AM
- Adjusted income of $158.5M or $1.45 per share vs. $113.1M and $0.98 one year ago.
- AUM of $671.5B slips from $672.1B a quarter earlier despite $6.8B from the RARE Infrastructure purchase and $6.4B of positive market performance. There were liquidity outflows of $10.9B, long-term outflows of $2.4B, and $500M of in negative foreign exchange.
- In other company news, Legg Mason (NYSE:LM) agrees to combine Permal (its hedge fund platform) with EnTrust Capital - a hedge fund investor and alternative asset manager with about $12B in AUM.
- The company also gets into ETFs with the purchase of a minority stake in Precidian Investments.
- Finally, there's the purchase of a majority stake in Clarion Partners for $585M. Clarion is a real estate investor, managing about $40B.
- Conference call at 8:30 ET
- Previously: Legg Mason EPS of $1.45 (Jan. 22)
- LM flat premarket
Fri, Jan. 22, 7:16 AM
- Legg Mason (NYSE:LM): FQ3 EPS of $1.45 may not be comparable to consensus of $0.70.
- Revenue of $659.56M (-8.3% Y/Y) misses by $23.97M.
Legg Mason, Inc. is a global asset management company, which provides investment management and related services to institutional and individual clients, company sponsored mutual funds and other pooled investment vehicles through financial intermediaries. The company's investment products... More
Industry: Asset Management
Country: United States
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