Monday, May 10, 2004

Greater activity in the stock market has helped give Legg Mason one of its strongest quarters on record, as more people pay to have their investments managed by the Baltimore company.

Legg Mason last week reported record revenue and net income for the first three months of this year, and said it is managing 50 percent more assets than at this point last year.

Despite the improvement, investors sold off Legg Mason shares yesterday over fears that the Federal Reserve will raise interest rates as early as next month. And analysts said the company’s share price was high enough to garner a tidy profit, and that now is the time to sell given that Legg Mason’s revenue growth can only slow down.

Shares of Legg Mason fell 85 cents to close at $85.51 on the New York Stock Exchange yesterday. They have fallen 12.8 percent since hitting a 52-week high of $98.03 on April 9.

Legg Mason reported net earnings of $91.93 million ($1.21 per share) for its fourth fiscal quarter, which ended March 31. That’s up from $48.66 million (71 cents per share) during the comparable quarter of 2003. Revenue rose to $559.6 million from $376.4 million.

Merrill Lynch analyst Guy Moszkowski raised his earning estimate on Legg Mason from $5.17 per share for the 2005 fiscal year to $5.27. Wachovia raised its 2005 estimate to $5.35 per share from $5.24, citing the company’s ability to get revenue gains from all of its product lines.

“Quarterly growth is unlikely to dazzle the way it has recently,” Mr. Moszkowski said. But he said that the company should continue to see earnings grow because nearly all of its business segments are making a profit and the company is attracting both large and small investors.

Companies like Legg Mason, which manage mutual funds and individual investment portfolios, are now indirectly benefiting from the collapse of the technology sector in the late 1990s. Many people who lost money buying and selling stocks on their own during that volatile time determined that hiring a professional to help manage their investments poses less financial risk.

Furthermore, more people began investing in mutual funds managed by Legg Mason as part of 401(k) and other retirement plans offered by their employers.

Because Legg Mason saw an increase in the amount of assets it managed in the past year, fees from investment advice rose 68 percent, to $366.9 million. Such fees represented 66 percent of the company’s revenues over the past three months, up from 58 percent during the comparable quarter last year. For the entire fiscal year, Legg Mason brought in a record $1.2 billion in fees from investment advice.

But company management said it is not relying too heavily on investment fees for revenue. Legg Mason’s investment banking and institutional sales divisions brought in a record amount of revenue in the last 12 months, and revenues from its Capital Markets business rose 12 percent.

“We have focused on building the necessary infrastructure to create sustainable balance in our business and support future growth,” said Legg Mason Chairman and Chief Executive Officer Raymond A “Chip” Mason. “Legg Mason and its shareholders clearly reaped the benefits of this strategy this year.”

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