TD Raise their target by another buck to US$62.00. GLTA
Brookfield Corp.
(BN-N, BN-T) US$40.53 | C$54.53
Q4/23 DE Beat; Planning to Accelerate Share Repurchases
Event
BN reported Q4/23 results and signalled an intention to accelerate share
repurchases.
Impact: SLIGHTLY POSITIVE
Q4/23 Results: DE of $0.83/share were a solid beat vs. the Street/TDSI at $0.73/
$0.69. Both core DE and realized carried interest came in above expectations.
Carried Interest: Amid a backdrop of very low transaction velocity, BN realized
$100mm of carried interest in Q4/23 and $570mm in 2023. Notwithstanding
these realizations, the accumulated but unrealized carried interest balance (net)
increased to $6.2bln in Q4/23 (~$3.90/share) vs. $5.6bln in Q4/22.
Share Buybacks: BN's view of intrinsic value is $82.29/share, roughly 2x the
current share price. BN repurchased ~$600mm of shares in 2023 and expects
to acquire $1bln+ over the next few months if prices stay reasonable. The
company will also consider switching to a tender offer process if the shares are
not readily available and/or if it decides to increase the size of its repurchases.
BN expects to realize $12bln of net carried interest over the next five years,
and $26bln over the next 10 years, and has indicated that it will likely direct a
meaningful portion of this cash towards share repurchases if the current discount
vs. intrinsic value persists.
Uniquely Positioned in Data: We believe that BN's strong positioning in data
is not well-understood. The company's infrastructure platform owns one of the
largest global hyperscale data center platforms, with a substantial contracted
growth pipeline, but data centers are also very energy-intensive and have a
destabilizing impact on the power grid; therefore, they increasingly need to have
an accompanying power solution to secure permits. Brookfield's competitive
advantage is that it is uniquely positioned as perhaps the only player that can
provide both scale data center capacity and scale clean energy solutions
on a global basis.
TD Investment Conclusion
The combined market value of BN's investments in BAM/BEP/BIP/BBU still exceeds
its own market cap; therefore, we see significant upside optionality in its unlisted
investments (real estate and insurance) and carried interest. Importantly, Brookfield's
senior executives are heavily invested in BN, and therefore highly aligned with
shareholders in wanting to see the business properly valued.