Brookfield Asset Management Voting Ord Shs Class A T.BN.PF.E

TD

[retiredcf]

Their target is still a very healthy US$72.00. GLTA

Brookfield Asset Management Inc.

(BAM-N, BAM.A-T) US$49.43 | C$64.70

Resuming Coverage; See Very Attractive Upside Potential

Event

We are resuming coverage of BAM ahead of its Investor Day (September 12).

Impact: NEUTRAL, but reducing our target price to reflect macro uncertainty

 Asset Manager: The partial listing of the asset manager, which should be complete by year-end, will naturally be a focus of the Investor Day. We expect the manager to attract a high multiple, based on: 1) a simple balance sheet, which will be much easier to analyze/compare vs. peers; 2) a heavy weighting to real assets, which offer significant inflation protection; and 3) a fundraising environment that is consolidating around managers like BAM, which have the greatest scale/diversity of product offerings. The potential to create a well-priced security provides optionality for growth because the shares can be used as an M&A currency. We would expect BAM to be very selective on M&A due to the importance of cultural fit, but could envision the company using M&A to quickly scale up in Asia/technology, much as it did in credit with Oaktree.

 Corporation: The presentations will likely also devote considerable time to the corporation, which will own 75% of the manager and be responsible for allocating BAM's proprietary capital and substantial free-cash-flow. Some investors have expressed concern that a higher valuation for the manager could be partially offset by a larger discount on the corporation's invested capital, but in our experience, many potential investors are deterred by BAM's balance sheet, whereby a separately listed manager should attract new investors rather than cannibalize the corporation's existing investor base.

TD Investment Conclusion

Our revised target price assigns no value to carried interest, applies a 25x multiple to FRE, and values the real estate at an ~30% discount to IFRS, and offers nearly an ~50% implied return. We believe that the long duration of BAM's FBC and the step-function increase in FBC/FRE, underpinned by the latest round of flagship fundraising, are supportive of a 25x-30x FRE multiple and note that carried interest contributed TTM DE of ~$0.30/share and has an accumulated but unrealized balance of ~$3.35/share. BAM also continues to sell real estate at premiums to IFRS. Accordingly, we see very attractive upside potential vs. the current share-price.