Our View: We have a positive view on Q1/22 results. While financial results (FRE, OFFO) were in line with our forecast, BAM confirmed plans to spin off its asset management business and indicated its fundraising outlook is very strong, which bodes well for future FRE growth. Our Outperform rating reflects our view that BAM offers an attractive mix of positive fundamentals; potential catalysts (e.g., asset manager spinoff, potential large monetizations, successful fundraising); and an attractive valuation (22% discount to NAV). In Exhibit 12 on p. 9, we show buying BAM when it trades at a discount to NAV has been historically a good time to buy.
Key points:
Q1/22 Operating FFO/share (OFFO) of US$0.66/share was right in line with our US$0.66/share forecast, which was up +38% Y/Y compared to Q1/21.
Q1/22 consolidated Fee Bearing Capital (FBC) (incl. Oaktree at 100%) was US$379B, +4% Q/Q and +19% Y/Y. The +4% Q/Q growth in FBC was due to Infrastructure strategies (+12% Q/Q) and Renewable Power and Transition strategies (+8% Q/Q) while the +19% Y/Y growth in FBC was driven by growth across all strategies with Real Estate strategies (+25% Y/Y) growing the fastest.
BAM confirmed it will spin off its asset management business, distributing 25% to shareholders by the end of 2022 on a tax-free basis for Canadian and U.S. investors (and possibly others), and intending to pay at least 90% of earnings as dividends. Combined, shareholders are expected to get the same/similar dividend as today, meaning BAM's dividend will be slightly reduced. BAM estimates the value of the asset manager at US$20B or ~US $12 per BAM share, which assumes ~US$1.9B of annualized FRE is valued at 30x; ~US$2.2B of annualized carried interest is valued at 10x plus $5B of accumulated unrealized carried interest.
BAM is bullish on its fundraising outlook as it believes 2022 fundraising is likely to exceed strong fundraising in recent years. Q1/22 fundraising highlights: BAM’s next flagship private equity fund and infrastructure fund will soon have their first close; the next flagship real estate fund has raised US$12B with more to come; the transition fund raised US$13B and is expected to reach its US$15B cap; and the infrastructure and real estate perpetual funds raised US$5B YTD.
Reducing our target to $68 (was $72), but maintaining our Outperform rating. The lower target reflects lower financial forecasts owing to reduced management fee forecasts given the recent market pullback and a narrower premium to NAV (0%, was +5% premium) due to increased macro uncertainty