Sample of Academic Work- BlackRock

Ticker (BLK) NYSEAsset Management & Custody Banks

Steve Murray

BlackRock, Inc.

Team Recommendation► Our one year target price is: $218► Appropriate purchase price

(rationale): $200► Top 3 reasons to purchase

► Recent Strategic Acquisitions► Strong Risk Management Products► International Expansion

Company Description► BlackRock is a premier provider of global

investment management services► As of September 30, 2007, BlackRock

manages $1.36 trillion across fixed income, equity, liquidity, asset allocation/balanced, real estate, and alternative strategies for institutional and retail clients worldwide

► BlackRock serves clients from offices in 19 countries, maintaining a major presence in North America, Europe, Asia-Pacific, and the Middle East

► BlackRock employs approximately 5,100 employees, including more than 550 investment professionals worldwide

Business Units/Segments

► Fixed Income Asset Management ► At the end of 2006 fixed income products

accounted for 41% of total assets under management, equity products 35%, money market or liquidity products 20%, and alternative investment products 4%

Business Units/Segments

Key Drivers-Acquisitions► Merrill Lynch Investment Management (MLIM)

► Expands global presence and diversifies business► Revenues reached a record $2.1 billion, and diluted

earnings per share increased 32% to $5.33 for 2006► Alternative platforms were expanded with private equity

fund of funds, international real estate and equity hedge funds

► The merger substantially expanded their capabilities, propelling equity assets to $392.7 billion or 35% of total assets under management

► Fixed income assets under management increased to $455.9 billion and their platform was enhanced with euro, sterling, U.S. tax-exempt and distressed investment expertise

Key Drivers-Acquisitions► Quellos Group

► Funds-of-Funds business► Added $22 billion in assets under management► $7 billion of private equity AUM and $20 billion

of hedge fund AUM► SSRM Holdings

► State Street Research & Management, State Street Research & Management Co. (SSR) and SSR Realty Advisors, from MetLife, Inc.

► Added $52 billion in assets under management

Key Drivers► Strong Risk Management

► BlackRock Solutions’ business has become increasingly well-diversified across products and clients

► BlackRock Solutions’ revenues from system outsourcing, risk management, advisory and transition management services grew by 20% to $148.0 million in 2006

► Aladdin®- risk analytics, portfolio management, compliance and operational processing

► Riskier environments lead investors to less volatile markets like money market funds

► $30 billion moved into BlackRock’s liquidity products

Key Drivers► International Expansion

► $383.3 billion of their assets international investors in more than 50 countries

► 3rd Quarter- $9.9 billion in inflows (24%)► MLIM added their industry leading

international mutual fund platforms► 48% of equity and balanced AUM were

managed for U.S. investors and 52% for international clients

► In the 4th quarter, nearly 50% of pre-tax income came from international clients

► International clients typically invest in riskier funds with higher returns and higher fees

► Plans to open 5 new offices outside the US within the next year

Key Drivers► International Expansion

Competitive Landscape► Franklin Resources Inc. (BEN)-The Investment Management and

Related Services segment provides investment management and fund administration services, and other related services, The Banking/Finance segment provides retail-banking and consumer lending services, including automotive lending related to the purchase, securitization, and servicing of retail installment sales contracts; consumer credit and debit cards; real estate equity lines; and home equity/mortgage lending. It offers its services to individuals, foundations, and institutions worldwide

► T. Rowe Price Group Inc. (TROW)-provides its services to corporations, corporate, public, and Taft-Hartley retirement plans, foundations, and endowments. Through its subsidiaries it manages separate client-focused equity, fixed income, and balanced portfolios; common trusts, and institutional mutual funds, and advisory services

► Ameriprise Financial Inc. (AMP)-provides financial planning, asset management, and insurance services to individuals, businesses, and institutions

► Fortress Investment Group LLC (FIG)- provides its services to pension funds, endowments and foundations, financial institutions, funds of funds and high net worth individuals. It manages hedge funds and publicly traded alternative investment vehicles

► Legg Mason Inc. (LM)-provides investment management and related services to institutional and individual clients, company-sponsored mutual funds, and other investment vehicles worldwide

Current News- 4q07 Earnings► 1/17- BlackRock Inc.'s fourth-quarter earnings jumped

90% from last year► $75 billion of net inflows in their cash management

products in 2007, its conservative funds and its alternative investment products

► $22.2 billion increase in money market funds, 72% of total net flows in 4th quarter

► Net income rose to $322.4 million, or $2.43 per share, from $169.4 million, or $1.28 per share, a year earlier. Revenue surged 42 percent to $1.44 billion from $1.02 billion last year

► Analysts were expecting $2.15 a share with $1.31 billion in revenue

► Investment and advisory fees rose 34% to $1.16 billion, and advisory performance fees nearly quadrupled to $153 million

► Equity and balanced products saw record net inflows of $10.8 billion

► $4 billion in fixed income outflows*

Current News► 1/30- Raised $28 billion in liquidity, money

market, assets ytd in 2008► 1/16- BlackRock Inc. announced the appointment

of John Thain, CEO of Merrill Lynch, to the company's Board of Directors

► 1/15- Merrill Lynch agreed to issue $6.6 billion of mandatory convertible preferred stock to long-term investors (Korean Investment Corporation, Kuwait Investment Authority, and Mizuho Corporate Bank)

► 6/26/07- Acquired Quellos Capital Management► 9/29/06- Acquired Merrill Lynch Investment

Managers (MLIM)► 1/28/05- Acquired State Street Research

Management

Company Strategy► BlackRock offers a wide range of investment

solutions reflecting the varied needs and preferences of their clients. They have fixed income portfolios with exposure to global bonds, but they also manage bond portfolios denominated in U.S. dollars, sterling, euros, yen and Australian dollars. In equities, in addition to U.S., international and emerging market offerings, they manage equity portfolios with strategies specific to the UK, Europe, Japan and Australia. They manage sector-specific mandates across asset classes as well as multi-asset class strategies. Their strategies are tailored to appeal to both taxable and tax-exempt investors with diverse appetites for return and risk

Comparables

CurrentPrice Price / Price/ Annual

As % of 2008E 2009E 2007A 2008E 2009E Dividend52 Wk High EPS EPS BV of Equity BV of Equity BV of Equity Yield

Franklin Resources Inc (BEN) 66.7% 12.5x 11.2x 3.4x 3.1x 2.7x 0.82%

T Rowe Price Group Inc (TROW) 76.6% 21.3x 18.2x 2.0x 1.8x 1.5x 1.91%

Ameriprise Financial Inc (AMP) 76.2% 13.6x 11.6x 1.7x 1.6x 1.6x 1.14%

Fortress Investment Group (FIG) 37.8% 12.2x 9.8x 0.1x NA NA 6.99%

Legg Mason Inc (LM) 64.1% 14.4x 13.4x 0.8x 0.8x 0.8x 1.36%

Mean 64.3% 14.8x 12.8x 1.6x 1.8x 1.7x 2.44%

Median 66.7% 13.6x 11.6x 1.7x 1.7x 1.6x 1.36%

High 76.6% 21.3x 18.2x 3.4x 3.1x 2.7x 6.99%

Low 37.8% 12.2x 9.8x 0.1x 0.8x 0.8x 0.82%

BlackRock Inc. (BLK) 89.1% 21.9x 18.0x 1.9x 2.2x 2.1x 1.30%

Comparables

2008E 2009E 2007A 2008E 2009E Cost of Equity Market CapPEG PEG ROE ROE ROE

Franklin Resources Inc (BEN) 0.9x 0.8x 24.0% 24.3% 23.1% 8.9% $24,942

T Rowe Price Group Inc (TROW) 1.4x 1.2x 21.8% 24.2% 24.7% 9.3% $4,819

Ameriprise Financial Inc (AMP) 1.1x 1.0x 9.2% 11.3% 12.7% 9.0% $13,113

Fortress Investment Group (FIG) 0.4x 0.3x 2.5% 0.0% 0.0% 10.8% $1,703

Legg Mason Inc (LM) 1.1x 1.0x 9.9% 11.6% 12.1% 7.9% $5,083

Mean 1.0x 0.9x 13.5% 14.3% 14.5% 9.18% 9,932

Median 1.1x 1.0x 9.9% 11.6% 12.7% 8.99% 5,083

High 1.4x 1.2x 24.0% 24.3% 24.7% 10.80% 24,942

Low 0.4x 0.3x 2.5% 0.0% 0.0% 7.94% 1,703

BlackRock Inc. (BLK) 1.3x 1.0x 7.8% 11.3% 12.5% 8.21% $24,142

Financial Ratios

2007A Profit Operating PretaxROE Margin Margin Margin Beta Beta vs. SPX

Franklin Resources Inc (BEN) 24.04% 26.99% 33.76% 37.5x 1.58 1.41

T Rowe Price Group Inc (TROW) 21.82% 28.01% 42.46% 45.4x 1.68 1.45

Ameriprise Financial Inc (AMP) 9.21% 7.75% 42.46% 9.8x 1.60 1.40

Fortress Investment Group (FIG) 2.46% 5.34% 44.44% 86.6x 2.15 N/A

Legg Mason Inc (LM) 9.89% 14.69% 23.81% 23.7x 1.29 1.14

Mean 13.49% $0.2 37.39% 40.6x 1.66 1.35

High 24.04% $0.3 44.44% 86.6x 2.15 1.45

Low 2.46% $0.1 23.81% 9.8x 1.29 1.14

BlackRock Inc. (BLK) 8.37% 20.23% 26.78% 37.1x 1.48 1.24

5-Year Summary

Historical & Projected Fiscal Year Ending December 31,2003A 2004 2005 2006 2007 2008E 2009E 02-'08E CAGR

Net Income $155 $215 $234 $345 $995 $1,243 $1,452 45.1%% Growth NA 38.2% 8.9% 47.5% 188.5% 24.9% 16.9%Book Value of Equity 713 768 922 10,782 11,493 10,356 10,920 57.6%

00-'04 MedianROE 21.8% 27.9% 25.4% 3.2% 8.7% 12.0% 13.3% 13.3%

Cash Dividends Paid (26) (64) (77) (136) (311) (388) (453)Dividend Payout Ratio 16.5% 29.7% 32.8% 39.3% 31.2% 31.2% 31.2% 31.2%

Retained Earnings 516 602 738 981 1,666 2,521 3,520

ProjectionsHistorical Year Ended December 31, 2006

2008E 2009E 2010E 2011E 2012E 2013E 2014E

$1,243 $1,452 $1,599 $1,710 $1,919 $2,012 $1,98924.9% 16.9% 10.1% 6.9% 12.2% 4.8% (1.1%)

850 896 972 1,055 1,144 1,286 1,392393 556 627 655 776 726 598

363 475 495 478 523 445 338

10,356 10,920 11,846 12,859 13,933 15,128 16,3728.21% 8.21% 8.21% 8.21% 8.21% 8.50% 8.50%

850 896 972 1,055 1,144 1,286 1,392

12.0% 13.3% 13.5% 14.0% 14.5% 14.0% 13.5%

1,243 1,452 1,599 1,710 1,919 2,012 1,98936.20% 36.20% 36.70% 37.20% 37.70% 38.20% 38.20%

450 526 587 636 724 769 760

2,459 3,385 4,398 5,472 6,667 7,911 9,140

Historical Year Ended December 31, 2006

Net Income%GrowthEquity CostExcess Equity Return

PV of Excess Equity Return

Beginning BV of EquityCost of EquityEquity Cost

ROE

NIDividend Payout RatioDividends Paid

RE

Valuation

Cost of Equity

7.85%8.10%

8.35%8.60%8.85%

TV ROE

15.66%16.16%16.66%17.16%17.66%

2008E 2009E 2010E 2011E 2012E 2013E 2014E

Net Income $1,243 $1,452 $1,599 $1,710 $1,919 $2,012 $1,989

Excess Equity Return 393 556 627 655 776 726 598

B1

Perpetuity Growth Rate2.25%2.50%

2.75%3.00%3.25%

ECurrent Diluted Shares

117117

117117117117

DTotal Equity Value

2.25% 2.50% 2.75% 3.00% 3.25%7.85% 25,742 26,339 26,995 27,721 28,526

8.10% 25,086 25,626 26,217 26,867 27,5868.35% 24,486 24,976 25,511 26,096 26,7408.60% 23,936 24,382 24,867 25,396 25,9778.85% 23,429 23,836 24,278 24,759 25,283

Final ValueTotal Equity Value Per Share

2.25% 2.50% 2.75% 3.00% 3.25%7.85% 220.35 225.46 231.08 237.29 244.18

8.10% 214.74 219.35 224.41 229.98 236.138.35% 209.60 213.79 218.37 223.38 228.898.60% 204.89 208.70 212.86 217.39 222.368.85% 200.55 204.04 207.82 211.93 216.42

Biggest Threats/Concerns

► Potential challenges associated with integrating the MLIM and Quellos businesses with its existing business, including risk of losing key personnel 

► Ability of BlackRock to effectively manage the former MLIM and Quellos assets along with its historical assets under management

► Changes in the interest rate environment, financial and capital markets

► Increased foreign exchange rate risk as a result of MLIM transaction

► Increased competition

Stock Chart

Team Recommendation► Our one year target price is: $218► Appropriate purchase price

(rationale): $200► Top 3 reasons to purchase

► Recent Strategic Acquisitions► Strong Risk Management Products► International Expansion