Post by
retiredcf on Aug 11, 2023 11:54am
TD Raise Target
A modest raise of a buck to $61.00. GLTA
Brookfield Corp.
(BN-N, BN-T) US$34.55 | C$46.42
Q2/23 DE Beat; Insurance Business Rapidly Scaling
Event
BN reported Q2/23 results.
Impact: SLIGHTLY POSITIVE
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Q2/23 Results: DE of $0.75/share were a beat vs. the Street/TDSI at $0.67/$0.65. The major variance was higher realized carry, but core DE also exceeded our forecast, and grew 15% y/y, after adjusting for the 25% spin-off of BAM.
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Asset Manager: Fee-bearing capital of $440bln was up 12% y/y, on TTM inflows of $74bln. BAM is targeting to raise a record ~$100bln in 2023, and the pending AEL acquisition, which will add ~$50bln of insurance AUM, should bring total inflows to ~$150bln, a step-function increase.
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Insurance Solutions: Spread earnings on the investment portfolio increased 20bps q/q to 220bps, as BN redeploys the portfolio into higher-yielding assets, including BAM-managed strategies. The pending AEL acquisition will effectively double insurance AUM to ~$100bln and should establish the business as a top- three annuity writer in the U.S., meaning that BN has the potential to achieve much of its targeted $225bln of insurance AUM through organic growth. We believe growth in insurance, particularly organic growth (which BN has more control over), creates a virtuous circle, because it 1) drives attractive spread- related earnings at BN; and 2) provides a stream of fee-bearing capital for BAM, enabling BAM to scale its existing strategies faster and accelerate expansion into adjacent strategies, thereby enhancing BAM's advantage of scale in executing transactions and increasing its relevance to clients in a consolidating market.
TD Investment Conclusion
We see significant upside in BN, and although it may take a turn in sentiment on CRE and/or interest rates to unlock that value, perhaps a multi-year period of strong earnings growth, boosted by insurance, can achieve the same end, if only more gradually. After subtracting the market value of BN's stakes in BAM/ BEP/BIP/BBU, the stock is ascribing negative value to real estate (~$20.00/share), insurance (~$2.50/share), and carried interest (~$3.70/share). We anticipate that BN will continue to repurchase $500mm-$750mm of shares/year, with the potential for a larger buyback at some point if the stock continues to trade at a significant discount to intrinsic value. Importantly, Brookfield's senior executives are heavily invested in BN and therefore highly aligned with shareholders.
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