TSX:BAM - Post Discussion
Post by
retiredcf on Sep 25, 2020 7:47am
TD Upgrade
Raised their target to US$46.00. GLTA
Brookfield Asset Management Inc.
(BAM-N, BAM.A-T) US$31.76 | C$42.37
Leading Alternatives Manager Well-positioned for Near-zero Rates
Event
BAM hosted its annual Investor Day.
Impact: POSITIVE
The presentations highlighted the resiliency of BAM's cash flows/capital structure at the height of the pandemic (Q2/20 OFFO of $657mm was relatively stable y/y). Management also expressed a high degree of conviction in the intrinsic value of BPY's real estate portfolio and the sustainability of BPY's distribution, issues which we believe have exerted a disproportionate drag on BAM's recent share-price performance, considering that BPY represents 8% of our target NAV, and real estate comprises 20% of fee-bearing capital (including Oaktree at 61%).
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In an environment where interest rates across all major capital markets are zero/ near-zero, the already powerful flow of funds into alternatives should increase substantially, to the disproportionate benefit of top-tier managers like BAM, in our view. The company continues to target $100bln from its next round of flagship fundraising and has already made excellent progress by raising $12bln for the latest distressed debt fund. BAM believes that fee-bearing capital could surpass $500bln over the next five years (13% CAGR), and outlined four strategies, which should become more significant towards the latter half of the decade: 1) secondary funds; 2) impact funds; 3) technology funds; and 4) insurance.
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BAM's unlisted funds continue to meet/exceed their target returns, such that the company expects to realize $20bln of cumulative carried interest (gross) during 2020-2030 and estimates that it could realize $15bln even in a downside scenario. Including that increasing stream of realized carried interest, BAM expects free cash flow to grow to $7.1bln in 2025 vs. $2.6bln in 2020, and although we anticipate that near-term capital deployment will be focused on the investment opportunities that should arise as temporary economic stimulus measures lapse, and governments/corporations confront larger debt burdens, it remains our view that share repurchases will assume greater prominence over time.
TD Investment Conclusion
We believe that BAM has ample liquidity to address the issues that BPY's mall assets are facing, and to capitalize on market dislocation, as it has done in previous downturns. Furthermore, we believe that the company's alternative investment products will become even more essential to clients in a prolonged period of low interest rates.
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