CIBCDecember 15, 2022 Earnings Update
BROOKFIELD CORPORATION
The Song Remains The Same...
Our Conclusion
While the recent spin-out of the 25% partial interest in “The Manager” was initially met with a “Dazed and Confused” reaction, we believe that, in time, the market will focus a “Whole Lotta Love” on the deeply discounted parent, Brookfield Corporation (we’ll refrain from calling it a stairway to anywhere though). On December 9, 2022, Brookfield Corporation (previously Brookfield Asset Management, now trading as “BN”) completed the spin-off and distribution of a 25% interest in the company’s asset management business (now “BAM”), with BN retaining ownership of the remaining 75%. In perhaps typical Brookfield fashion, the company once again demonstrates the wide array of value-surfacing initiatives at its disposal as it (and indeed we) believed the market was undervaluing its business platform. The company believes that a pure-play alternative investment manager with a lighter on-balance-sheet capital base could be easier to value (something with which we don’t disagree), and when looking at comparable peers, could also attract
a higher valuation. Additionally, such a spin-off could potentially expand the current investor base (i.e., a more dividend-focused base), allowing investors to be more selective in their desired exposures.
In conjunction with our Diversified Financials’ analyst’s BAM valuation, we are revising our estimates to reflect the spin-out of the asset manager, and apply sum-of-the-parts valuations in deriving our new NAV and price target. We maintain our Outperformer rating and lower our NAV to $58 (from US$65), while concurrently lowering our price target to US$53 (from US$62), which is derived by applying a ~10% discount to our NAV.
Key Points
Valuation Update: We are updating our U.S.-denominated NAV to US$58
utilizing a sum-of-the-parts valuation, which incorporates the newly spun-out asset management platform, perpetual affiliates, and its other listed entities.
Breaking Down The Distribution: Commencing 2023, Brookfield
Corporation is expected to pay a quarterly dividend of $0.07 per share, while BAM is expected to pay a quarterly dividend of $0.32 (equivalent to $0.08 per share for existing shareholders, adjusting for the 1:4 distribution). This would equate to $0.15 per share on a combined basis for shareholders retaining their position in BAM, representing a 7% increase.
Stock Ticker Update: Brookfield Corporation has changed its name from
Brookfield Asset Management to Brookfield Corporation, with a new ticker “BN” on both the TSX and NYSE, while the spun-out asset manager will trade under the ticker “BAM” under both the TSX and NYSE.
Relationship Agreement: BN is entitled to receive 33.3% of the carried
interest and similar distributions on new sponsored and open-end funds from the asset manager regardless of participation, while retaining 100% of the carried interest earned on mature funds