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

RBC Upgrade

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Their upside scenario target is also raised to US$64.00. GLTA

December 22, 2020

Brookfield Asset Management Inc. 
Takin’ Care of Business

Our view: We view BAM as a core holding and believe the company is well- positioned to benefit from increased demand for real asset/alternative investment strategies, particularly with interest rates being almost zero. Coupled with BAM’s strong investment track record, global reach, size/ scale, and diverse funds/strategies, we forecast this to translate into double-digit NAV growth over the next year. We view the shares as attractively valued, trading at a 9% discount to NAV (we think the shares should trade at or a slight premium to NAV). Establishing a one-year price target of US$51 (a 5% premium to our NAVPS estimate one-year hence and 19x 2022E OFFO), we assume coverage of BAM’s shares with an Outperform rating.

Key points:

Assuming coverage with an Outperform rating and US$51 price target (prior $45). We believe the combination of BAM’s strong investment track record, US$76B of “dry powder” and differentiated and diversified product offering could translate into double-digit NAV growth over the medium to potentially long-term. Monetizations are hard to forecast (but can surface value) and in the near-term, BAM indicated it is likely to start fundraising for its flagship funds in early 2021. Over the medium to long- term, BAM’s 3 new verticals (Reinsurance, Impact funds, Secondary funds) could be significant drivers of NAV growth over time (BAM estimates the 3 new verticals could be US$225-$450B in AUM). We believe these avenues for growth could result in our forecasts being conservative. With the shares trading at a 9% discount to NAV, we believe the current share price is an attractive entry point for a stock we view as a core holding.

Key Exhibits:

• Our positive view on BAM’s valuation in part reflects our estimate that the implied Asset Manager 2021E Fee Related Earnings (FRE) multiple (akin to a P/E multiple) is 15.5x, significantly below its 17x historical average, 18x peer average P/E multiple and our 20x target multiple. Each 1x increase in the FRE multiple adds ~+250bps to BAM’s total implied return (Exhibit 14);

• Historically, buying BAM at a discount to NAV was a good time to buy (Exhibit 15) and the shares currently trade at a 9% discount to NAV (Exhibit 13);

• We estimate each 25% improvement in BPY’s discount to NAV equates to +3.5% upside to BAM’s share price (Exhibit 18);

• Historically, when the S&P/TSX Composite Index declined >10%, BAM usually (but not always) outperformed the Index. In the subsequent market rally, BAM consistently outperformed the Composite Index (Exhibits 16, 17, 21). Relative to Canadian banks, BAM consistently underperformed during severe downturns. However, BAM both consistently and significantly outperformed the banks during the ensuing market rally.