CIBC Upgrade In the wake of a noticeable decline since it reported first-quarter results on May 7, CIBC World Markets analyst Nik Priebe thinks Brookfield Business Partners LP’s performance “does not adequately reflect the upside associated with potential monetization activities that could materialize over a 12-month time frame.”
He now sees that disconnect and “a healthy pipeline of positive catalysts” providing “an attractive entry point” for investors.
“Following an initial bump on the announcement of the Clarios IPO in early May, BBU’s unit price has underperformed private equity peers and the broader Canadian equity market indices,” he said. “The company has also lagged private equity peers on a year-to-date basis, despite the emergence of press reports regarding two transactions that could be materially accretive to NAV [net asset value].
“In a scenario where the Clarios IPO and Westinghouse transactions materialize at the valuations that were reported in the press earlier this year, our “‘back-of-the-envelope’ math indicates potential upside to gross asset value of 74 per cent. Although we can’t corroborate this reporting or speculate on the probability of the transactions materializing, in this report we illustrate the potential upside to the fair market value of BBU’s investing capital.”
Touting “an asymmetric return profile,” Mr. Priebe raised his target to US$60 from US$55 with an “outperformer” rating. The average is US$56.14.
“If the Clarios or Westinghouse transactions materialize, we see potential for significant upside from a net asset value perspective. If neither transaction occurs, we believe downside is limited given that the units trade in line with the previous reported range of gross asset value,” he said.