CIBCThese are USD targets. GLTA
EQUITY RESEARCH
May 11, 2023 Company Update
BROOKFIELD CORPORATION
BN The Room Where It Happens
Our Conclusion
Brookfield Corporation started off the new year and first full reporting quarter
since the spin-out of the asset manager with an updated reporting structure
that offers investors with increased insights into its inner operations. Included
within these new disclosures is a breakdown of the company’s plan value,
and ultimately a lens into its valuation methodology (which when compared
to implied market values, indicates a negative ascribed value to the real
estate franchise). Operationally, BN continues to grow its asset base and
distributable earnings, continuing to see heightened demand for its myriad of
investment products. As BN further grows its re-insurance business, we not
only expect it to become a larger contributor to earnings, but also to provide
future synergies with its real estate portfolio (where these assets may
eventually find their way into). BN continues to see opportunities investing in
opportunities well in excess of its cost of capital, and is afforded the benefits
of large-scale perpetual capital, an advantage over those smaller that may
not have the staying power to maintain long-term investments. We remain
Outperformer rated and maintain our NAV and price target of $55.00 and
$50.00, respectively.
Key Points
Earnings Update: BN reported DE/sh of $0.72 ($0.59 before realizations) in
it Q1/23. A departure from FFO, the use of distributable earnings as the go-
forward valuation metric should more properly reflect the evolving operations
and indeed stability of cash flows post the spin-out of its asset management
platform.
Distributable Earnings: BN generated ~$1.2B in distributable earnings
during the quarter (~$945MM before realizations), led by the asset
management business which generated $678MM as a result of a 15%
increase in distributions from BAM, supported by growth in fee-related
earnings and distributions from direct investments in its private funds.
Insurance solutions generated ~$145MM, while distributable earnings from
the operating businesses generated ~$304MM. Additionally, $259MM and
$633MM was generated from disposition gains on principal investments and
realized carried interest, respectively.
AUM Update: Total AUM was $825B, with ~$432B (+14%) in fee-bearing
capital. Accrued unrealized carry totalled $9.4B, with expectations to realize
over $500MM into income in 2023. BN continues to see strong appetite for its
products as investors seek cash-generating real assets and businesses,
recording inflows of ~$19B year to date.
Balance Sheet: BN continues to have a conservative balance sheet, with
ample liquidity. At quarter end, the company had $5.3B of corporate liquidity,
including $2.8B in cash and financial assets and $2.5B of undrawn facilities.
Including uncalled private fund commitments (~$79B), total group liquidity
totaled ~$113B.