Legg Mason Inc. (LM): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

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Summary:
Legg Mason's fiscal first-quarter 2015 earnings outpaced the Zacks Consensus Estimate and were well above the prior-year quarter figure. Robust growth in top line aided by effective expense control uplifted the results. However, these were partially offset by net outflows. The company looks ahead to reinforce its global investment products portfolio through several acquisitions it has undertaken. We believe that Legg Mason has the potential to outperform its peers in the long run, given its diversified product mix and leverage to the changing market demography. However, a persistent low interest rate environment along with a volatile economy keeps us apprehensive.

Overview:

Headquartered in Baltimore, MD, Legg Mason Inc. (LM) is a global asset management firm focused on the growth and preservation of its clients' capital through its proprietary mutual funds and separately-managed accounts (SMAs). It was founded in 1899 and incorporated in 1981. As a holding company, Legg Mason provides asset management, investment banking and related financial services through its various subsidiaries. The company conducts its business primarily through 6 core asset managers and 4 additional asset managers. The company operates principally in the United States of America and the United Kingdom but also has offices in Australia, Bahamas, Brazil, Canada, Chile, China, Dubai, France, Germany, Italy, Japan, Luxembourg, Poland, Singapore, Spain, Switzerland and Taiwan.

In Dec 2005, Legg Mason changed its business model to focus solely on asset management through an asset-swap transaction with an investment banking firm. In this transaction, Legg Mason sold its capital markets, as well as private client businesses, and acquired the asset management arm of the firm. Legg Mason and its subsidiaries operate through 3 primary divisions: Managed Investments, Institutional, and Wealth Management. The company markets its services to individuals and institutions through brokerage houses, insurance companies, and other third-party distributors.

Legg Mason is organized around 2 principal revenue segments:

The Investment advisory Services segment (accounted for 87% of total operating revenue in fiscal 2014) includes discretionary and non-discretionary management of separate investment accounts in numerous investment styles for institutional and individual investors. The investment products include proprietary mutual funds ranging from money market and other liquidity products to fixed income, equity funds managed in a wide variety of investment styles, other domestic and offshore funds offered to both retail as well as institutional investors, and funds-of-hedge funds.

The Distribution and Service Fees segment (13%) includes fees received for distributing investment products and services or for providing other support services to investment portfolios, and are generally calculated as a percentage of assets in an investment portfolio or as a percentage of new assets added to an investment portfolio.

Legg Mason's AUM is split between fixed income, equity and liquidity investments. Equity assets are primarily managed by ClearBridge, Royce, Batterymarch, Permal and Brandywine, with fixed income assets primarily managed by Western Asset and Brandywine, and liquidity assets managed by Western Asset.

As of Jun 30, 2014, Legg Mason's AUM was $704.3 billion. Of the total AUM, fixed income constituted 52%, equity 28% and liquidity 20%.

On Jun 2, 2014, Legg Mason announced the completion of the acquisition of New York-based private asset manager QS Investors in order to expand its global investment products portfolio. Legg Mason assumed QS Investors' AUM and assets under advisement, which stood at $4.9 billion and $96.5 billion, respectively, as of Apr 30, 2014. As per the agreement, Legg Mason's quantitative equity division Batterymarch Financial Management and its solutions unit Legg Mason Global Asset Allocation will gradually merge with QS Investors. The merged entity that will be recognized under the QS Investors name will serve both institutional clients as well as retail investors.

Through this integration process, Legg Mason will bear restructuring costs of around $35 million. Further, excluding such costs, the company expects the acquisition to be accretive to earnings in calendar year 2015.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks

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