TSX:BAM - Post Discussion
Post by
retiredcf on Aug 14, 2020 8:15am
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Their upside scenario target is US$52.00. GLTA
August 14, 2020
Brookfield Asset Management Inc.
High quality AM franchise; attractive valuation
Our view: In the face of a very difficult economic environment globally, Brookfield Asset Management's ("BAM") Q2/20 results were moderately ahead of our expectations. The organization's financial strength and liquidity, and its fundraising momentum have possibly never been better. In this context, we believe the value of the asset management franchise is underappreciated when measured by the current share price. Increasing our Target +$1 to $40, we reiterate an Outperform rating on BAM's shares.
Key points:
Recap: Good Q2 results – Q2/20 OFFO/share of $0.40 ($657MM) was -6% YoY from Q2/19’s $0.43 ($668MM) yet 10% above our $0.37E ($607MM). Q2/20 Fee related earnings per share of $0.21 ($324MM) was +18% YoY from Q2/19’s $0.18 ($263MM) and in-line with our $0.20E ($306MM). OFFO on invested capital per share of $0.19 ($333MM) was -23% from Q2/19’s $0.25 ($405MM) yet nicely ahead of our $0.17E ($300MM). As expected, a number of BAM’s more cyclical businesses (malls, hotels, housing, building products and other industrial operations) posted lower earnings amid Q2’s global shutdown of non-essential services. Many of these businesses are already experiencing improvements in turnover and some (e.g., Norbord) could post dramatically improved earnings and cash flows in H2/20. Many more aspects of the results and the outlook are covered in our First Glance note and herein in more detail.
IVPS estimate moves upwards (to $36); share price at a discount – The components of our IVPS estimate are $17/share of TNAV and $18/share for the asset management franchise. Our IVPS is +10% since our last update (mid-May), -13% below February’s all-time high and +13% YoY. Over the last 3 months, strength in listed equity markets have helped lift the TNAV component by more than $2/share or 17%, while our asset manager valuation is little-changed. BAM’s share price is at a modest (6%) discount to our IVPS estimate.
Significant contraction in the implied asset manager multiple – We peg the implied FRE multiple on BAM’s asset management business at 17x. In this regard: 1) there has been a sizable 7 multiple points of contraction since the valuation peak (Feb 2020); and, 2) to find a lower implied valuation multiple (than current), one has to trek all the way back to Q2/18. We believe BAM’s asset management platform is a high franchise value business, based upon its: 1) size and scale; 2) long-term track record of growth (2011 FRE of $119MM; 2019A FRE of $1.2B); 3) solid near- mid- and long-term earnings growth potential; and 4) “capital light” nature. Moreover, in the context of overall listed equity markets valuations (the S&P 500 Index at 23x FTM EPS), we believe the implied 17x multiple is a very attractive valuation for a business of this caliber. For more details, see pages 5-6 and Exhibit 7 herein.
Price target +$1 to $40; Outperform rating reiterated.
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