TD Raises Target Raise their target by a buck to US$61.00. GLTA
Brookfield Corp.
(BN-N, BN-T) US$39.17 | C$52.68
Q4/23 Preview; Entering 2024 from a Position of Strength
Event
BN will report Q4/23 results on Thursday, February 8 (pre-market).
Impact: NEUTRAL, although we have revised our target NAV to reflect
higher target prices for BAM/BIP.
Q4/23 Results: We expect DE/share of $0.69 vs. the Street at $0.73. Core DE are
highly predictable; therefore, realized carried interest likely drives the variance.
We believe BAM will achieve its goal of raising close to $100bln in 2023, a
significant achievement amid one of the most difficult fundraising environments
seen in years. However, regulatory approval of the AEL deal, which should add
another $50bln of fee-bearing capital, appears unlikely prior to late Q1/24, which
might cause some short-term investor disappointment, but is not, in our view,
material to BAM/BN's five-year plan.
Capital Deployment/Recycling: BN has maintained strong access to capital
over the TTM. Even in real estate, BN refinanced all 2023 debt maturities, with
no material liquidity impacts, and expects the same going forward. Furthermore,
despite much-reduced transaction velocity, BN expects to generate $500mm+ of
net carried interest in 2023, demonstrating resilient buyer demand for the type
of high-quality businesses it owns. With interest rates now poised to decline, we
expect BN to benefit from: 1) improved deal-making activity, which should support
higher realized carried interest and higher distributions from its LP investments
in the real-estate funds and 2) an earnings tailwind for the on-balance-sheet
real-estate portfolio. Conversely, the cumulative impact of Fed tightening is just
being felt by many businesses that are not as well-positioned as BN, and which
have significant debt maturing in 2024/2025. Therefore, BN should enjoy good
opportunities to invest for value, as it has done in previous cycles.
TD Investment Conclusion
The combined market value of BN's investments in BAM/BEP/BIP/BBU still exceeds
its own market cap; therefore, we see significant upside optionality in its unlisted
investments (real estate/insurance) and carried interest. BN expects to realize
$26bln of net carried interest over the next 10 years, and has indicated that it will
likely direct a meaningful portion of that cash towards share repurchases if the current
discount vs. intrinsic value persists. Importantly, Brookfield's senior executives are
heavily invested in BN, and therefore highly aligned with shareholders.