Post by
retiredcf on May 12, 2023 8:37am
TD
Still looking for a double with a US$61.00 target. Remains on their Action Buy List. GLTA
Brookfield Corp.
(BN-N, BN-T) US$31.20 | C$42.11
Q1/23 DE In-line; Dry Powder Offers Significant Optionality
Event
BN reported Q1/23 DE/share of $0.72, in line with the Street/TDSI at $0.71/$0.73.
Impact: NEUTRAL
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Asset Manager: Fee-bearing capital of $432bln was up 14% y/y, reflecting $19bln of inflows YTD and ~$100bln over the TTM. BAM sees the potential for another record fundraising year in 2023 and is confident of reaching $1tln of FBC by 2027. BN expects to realize >$500mm of net carried interest during 2023 (inclusive of ~$200mm in Q1/23) vs. our prior estimate of ~$700mm, which is not surprising in light of slowing transaction velocity, and given that BN has the luxury of being patient vs. a forced seller.
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Real Estate: BN provided significantly more disclosure regarding its on-balance- sheet real-estate portfolio, which has minimal debt maturing this year, and should not be worth less than zero, as market seems to be implying, because BN finances asset-by-asset on a non-recourse basis with no cross-collateralization. The new metrics include NOI, occupancy, loan-to-value ratios, the remaining lease term, and the discount rates used, which should be supportive of the stock over time.
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Insurance Solutions: The insurance business generated DE of $145mm in Q1/23 and remains on track to reach $800mm of annualized earnings by year-end. BN's average investment portfolio yield is 5% vs. liabilities with an average cost of 3%, and the current environment is very conducive to higher yields as the company continues to redeploy the liquid short-term investment portfolio.
TD Investment Conclusion
After subtracting the market value of BN's stakes in BAM/BEP/BIP, the share price is ascribing negative value to the stake in BBU, the real-estate portfolio, the insurance business, and the accumulated but unrealized carried interest balance. BN's group- wide liquidity of $113bln provides considerable firepower to address that discount, and the company could repurchase ~10% of its market cap with ~1 year of free cash flow; however, repurchasing shares has to be weighed against the prospect of opportunistically enhancing the franchise against the current market backdrop. We believe BN's conviction in the intrinsic value of its stock price is evidenced by ~ $750mm of share repurchases over the TTM and ~$100mm of share purchases in the open market by the senior executive team since early-December.
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