Upgrade n response to recent price depreciation and after reconsidering the catalysts likely to create tailwinds ahead, Credit Suisse analyst Andrew Kuske upgraded Brookfield Business Partners LP to “outperform” from a “neutral” recommendation on Friday.
“Over the last two months or so, Brookfield Business Partners LP (BBU) delivered absolute and relative outperformance on a number of metrics peaking at US$48.42 with BBU/BBUun up 29 per cent/22 per cent year-to-date vs. SPX/TSX up 13 per cent/12 per cent,” he said. “With about a 10-per-cent pullback and a reconsideration of the catalysts ahead, we believe a more favourable risk/reward balance exists and, as a result, upgrade the stock ....
“In terms of ;what’s different’ beyond valuation, we are closer in time to large scale monetizations and the continued possibility of meaningful deployments. Clearly, these events lack the certainty of timing, but the scale of an economic recovery also favours BBU exposure, in our view. From our past downgrade, these factors looked to be mispriced to the upside and now look inappropriately discounted.”
Mr. Kuske sees “meaningful monetizations” ahead for Brookfield from several sources.
“A lot of focus exists on Clarios with news sources highlighting a US$20-billion value versus the US$13-billion of EV acquired in 2019,” he said. “On reasonable estimates, the high-single digit deal multiple would have expanded to low-double digits on EV/EBITDA on the numbers in media stories. Not as large, but still a big monetization could come from Westinghouse Electric that already returned BBU meaningful capital with dividends and EBITDA growth. Greenergy could benefit from enthusiasm for parts of the business.”
He maintained a target of US$52. The average is US$55.