Brookfield Infrastructure Partners LP BIP

Which Brookfield?

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Which Brookfield?

ALLAN TONGPOSTED ON MAY 9, 2023

Which Brookfield?

Every Canadian investor knows Brookfield. But which Brookfied? Last December 12, Brookfield Asset Management (BAM to Bay Streeters) was renamed Brookfield Corporation (BN on the TSX, also trading in New York under that ticker). However, 25% of Brookfield Corporation’s asset management business was spun off and now trades under BAM in Toronto. Confusing? And then there are the infrastructure and renewable stocks. After a quarter of operations, let’s sort out each stock and see how investible each is.

Brookfield Corp (BN-T)

On Dec. 12, BAM became Brookfield Corporation, the holding company. In short, BN is an alternative asset manager in real estate, renewable power, infrastructure, venture capital and private equity. BN holds $53 billion in mostly infrastructure assets (i.e. highway bridges, dams) on prime real estate. It invests and manages such companies in 30 countries, making it diversified in terms of business as well as geography.

According to CEO Bruce Flatt, the main purpose of the restructuring was to raise the value of BN from 9x book profit to around 30x. In the deal, BAM now receives 25% of management fees and two-thirds of performance fees while BN gets the rest.

BN also holds 75% of the Brookfield Asset Management business. Note that roughly 80% of these assets are locked in for the long term (10 years or more) which makes them less risky than those under peers BlackRock, for instance.

Metrics: 27.65x PE (vs. BlackRock’s 21.59x), a high 1.59 beta, and pays a mere 1.49% dividend yield but based on a safe 47.06% payout ratio. Ten-year annualized returns are roughly 14.6%, which is why Bay Street hold Brookfield in high regard.Cash flows are stable and linked in to inflation to absorb rampant inflation. BN has beaten three of its last four quarters (remember: under its previous name), but stumbled in the most recent, Q4-2022).

The operating margins remains steady at 15.24%, but the price-to-book of 1.3x is actually at its lowest level in over a decade (1.23 in 2022). Similarly, the price-to-cash flow of 6.03x is the lowest in the past 10 years, suggesting the stock is undervalued. These cash levels also insulate Brookfield from rising interest rates.

However, BN has defaulted twice so far this year, first on two office towers in Los Angeles to the tune of $784 million, and more recently $161.4 million on office towers in Washington, D.C. It’s no secret that office real estate has been struggling and spiking interest rates don’t help. Suddenly, investors are approaching BN with caution.

Still, the street has five buys and one sell on BN at a price target of $64.84, surpassing its 52-week high of $55.98. This is one to buy and hold long-term if you’re a value investor and can swallow some risk. For those seeking income and more certainty, read on.

Brookfield Asset Management (A) (BAM-T)

The current BAM manages alternative assets surpassing $750 billion in renewable power, infrastructure, private equity, real estate and credit. Yes, similar to BN. BAM also earns management fees from various public and private investment products and services on behalf of institutional and retail investors alike.

BAM trades at a 7.1x PE, pays a 3.9% dividend yield with a target payout ratio of 90%. Managers are aiming to double its business in five years, which would approach the historic growth average of 14.6% of its parent company. Price-to-book is 1.4x and price-to-cash flow 4.8x. The street has three buys, one hold and one sell at a price target only 8.7% higher at $48.22. Comparing BAM to BN, BAM has gained nearly 13% since Dec. 12 and BN -1.15%.

However, in the month of April, BN performed neck-and-beck with BAM, showing that the market is catching up to BN. Also, BAM is trading at 50- and 200-day moving averages. BAM could breakout from here, but there’s likely more upside in BN. It boils down to BAM for income investors and BN for long-term growth.

Brookfield Infrastructure Partners (BIP.UN-T)

BIP.UN is diverse in geography and industry. Think cell towers in India, Enercare in Canada, highways and natural gas plants. Infrastructure, utility and even energy make up its DNA. BIP.UN pays a 4.39% dividend that historically rises 5% each year, and it trades at a 0.89 beta. Fairly stable, though it missed its last two quarters.

Cash flows are reliable, because 90% are guaranteed by long-term contracts and government rates which are all linked to inflation. BIP.UN has performed well year-to-date and in the past month. Macro tailwinds are driven by government infrastructure spending in many jurisdictions, though the timelines of these could be long. In April alone, BIP.UN shares rose 5.6%. Like BAM, BIP.UN is an income stock that will serve shareholders well.