CIBCHave a US$75.00 target. GLTA
EQUITY RESEARCH
May 12, 2022 Earnings Update
BROOKFIELD ASSET MANAGEMENT
BAM BAM BAM
Our Conclusion
BAM delivered another strong quarter, in line with our estimates (we do
include realized gains in our forecast). After deliberating between separating
its asset management platform into a standalone entity and maintaining
everything under one very large roof, the company officially pulled the trigger
and announced its intention to separate the business from its existing
structure by way of distributing 25% of the asset management platform to
existing shareholders. The company believes, and we generally agree, that a
pure-play alternative investment manager with a lighter balance sheet could
be easier for some to value, and when looking at comparable peers, could
also attract a higher valuation. While full details will follow in the coming
quarters, our initial take on the spinco at an indicated value of $80B appears
fair in the context of the current market and values the platform at what we
estimate to be a high-teens EBITDA multiple (blending both FRE and carry –
30x FRE and 10x carry). Additionally, with little encumbering the balance
sheet, it will be able to maintain an expected payout of 90%, which we
believe will translate into a dividend yield in the 3%-4% range, making it
competitive with both the alternative asset manager peers and long bond
yields. In light of these developments and BAM’s in-line results, we maintain
both our Outperformer rating and price target of $75.00, implying a slight
premium to our forward NAV – we do note that our NAV estimate may
ultimately prove to be conservative as at an $80B platform value we estimate
a NAV north of $80.
Key Points
Earnings Update: Headline FFO was $0.96 a share, compared to
consensus estimates of $0.73, and very close to our Q1/22 estimate of
$0.98. Excluding realized gains, FFO per share clocked in at $0.73.
AUM Update: BAM continues to show no signs of slowing down when it
comes to growing its AUM base, with fee-bearing capital totaling ~$379B in
Q1/22, an increase of $59B over the last 12 months. This last quarter alone
saw a $14B increase in fee-bearing capital, with perpetual fee-bearing capital
now totaling $128B, a 19% increase from last year, driven by increased
capitalization across its perpetual affiliates and inflows from its perpetual
private funds. Management expects to be able to double its fee-earning
assets over the next five years, and we see this as a very achievable
benchmark given the excellent fundraising record the company has had.
Balance Sheet: The company’s balance sheet continues to remain strong
with ample liquidity. As of Q1/22, BAM had deployable capital of $85B, which
comprised of $15B in core liquidity and $70B in uncalled private fund
commitments. During the quarter, BAM further strengthened its liquidity
position by issuance of $400MM in 30-year green bonds at 3.63%, and a
$400MM re-opening of its 2028 notes at 2.55%