February 5, 2021
Brookfield Business Partners L.P.
Solid Q4/20. Well-positioned for 2021
Our view: BBU reported Q4/20 results that were solid pretty much across the board from their operating companies. Looking forward, we think BBU’s portfolio is well positioned to benefit from a gradual economic recovery and that BBU has sufficient liquidity to capitalize on new investment opportunities. We increase our 12-month price target to US $52/unit (was US$50) and maintain our Outperform rating.
Key points:
Q4/20 Company EBITDA of US$423MM was ahead of our forecast of US$391MM. Company EBITDA on a segmented basis were as follows: (1) Industrials had US$195MM, ahead of our US$171MM forecast; (2) Infrastructure Services had US$156MM, slightly ahead of our US$149MM forecast; (3) Business Services had US$92MM, in line with our US$93MM forecast; and (4) Corporate & Other had negative -US$20MM, in line with our negative -US$22MM forecast.
Other updates within BBU's portfolio: (1) Westinghouse paid US$265MM in dividends at the end of 2020, of which US$115MM was BBU's portion; (2) assuming the Genworth MI Canada (being renamed Sagen) deal closes (essentially Minister of Finance approval is all that remains), BBU's stake in the fully owned MIC will be ~40%. BBU also suggested the cash required to invest in the equity might be less as BBU might seek to increase the financial leverage at Sagen; (3) the Everise acquisition closed in January 2021 with BBU's equity investment of US$85MM (35% stake) of the US $240MM total equity investment; (4) in Q4/20 and Q1/21 to date, BBU sold 45MM shares in GrafTech, of which 17MM was held by BBU, with sale proceeds for the shares owned by BBU being US$220MM. Pro-forma, BBU's stake in GrafTech is 17%; and (5) Multiplex added ~US$900MM to its backlog in Q4/20 (now at ~US$5.6B, which would be in line with BBU’s target).
Other takeaways: (1) active M&A pipeline globally, but BBU is seeing opportunities in new sectors vs. historical. BBU thinks there is substantial growth opportunities in technology services (management is getting more comfortable on the space given their work closing the acquisition of Everise); (2) BBU opportunistically sold ~10% of its public equity portfolio during the quarter given strong equity markets since the market bottom. Although BBU sold/sold down stakes in certain companies, it still remains a potential acquirer if the opportunity arose at an attractive valuation; (3) BBU ended the quarter with ~US$2.5B of corporate liquidity; and (4) BBU continued its NCIB activity in Q4/20, repurchasing 881,245 units.