New Coverage Brookfield Business Partners L.P. provides investors with “a publicly traded vehicle to gain exposure to private equity-type investing strategy and returns,” said iA Capital Markets analyst Elias Foscolos.
In a research report released Friday, he initiated coverage with a “buy” recommendation, pointing to its ownership of “brand name global companies with high-quality fundamentals and meaningful exposure to a global low-carbon transition.”
“There are several reasons investors should consider investing in BBU,” said Mr. Foscolos. “First, BBU provides investors with exposure to private investments through a publicly listed vehicle. Second, BBU invests in a broad range of companies in different industries throughout the world. Third, the Partnership invests in companies that are strong market leaders in their category including Westinghouse, Clarios, and Sagen (formerly Genworth MI), Canada’s largest private mortgage insurer). Fourth, BBU is large and liquid. Lastly, BBU has a track record of achieving double-digit growth in Net Asset Value (NAV; iA estimates approximately 15 per cent per year.”
Mr. Foscolos emphasized the upside potential of Brookfield’s ownership of both Westinghouse Electric Co. and Clarios, which it is considering taking public later this year.
“Westinghouse and Clarios combined account for almost 50 per cent of our forward NAV valuation. Westinghouse is the leading provider of services to the global nuclear power industry, servicing ~two-thirds of the world’s fleet. Clarios is the leading manufacturer of advanced automotive battery technology, with one in three cars in the world powered by a Clarios battery. Both companies possess premium fundamentals, including market-leading positions in industries with high barriers to entry, relatively stable cash flows, and global diversification. While Westinghouse likely has more stable cash flows, we believe Clarios has better exposure to long-term growth trends (i.e., vehicle electrification). Since acquiring Westinghouse and Clarios in August 2018 and April 2019,respectively, BBU has been executing business development plans and growing EBITDA at both companies,” he said.
Seeing Brookfield trading a discount, Mr. Foscolos set a target of US$52 for its units. The average on the Street is US$46, according to Refinitiv data.
“BBU provides its own NAV estimate at annual investor day events,” he said. “The Partnership’s unit price has historically tended to trade relatively in line with the midpoint of the estimated NAV ... At BBU’s most recent investor day in 2020, the Partnership estimated its NAV at $40.00-44.00 per unit. However, we would note that global markets have since recovered by 20 per cent since that time, driven at least partially by an expected recovery in real GDP and corporate earnings. As such, we believe it is reasonable for us to estimate that BBU’s current unit price represents a discount to the current NAV.”