Our View: Just like BN said last quarter, they did not stop buying back stock and year-to-date have bought back >US$700MM of shares, adding ~US $0.50 of value per each remaining share. Furthermore, despite the discount to NAV continuing to narrow (now at 19% vs. mid-30s one year ago), it is still significant and why BN indicated it is likely to continue buying back stock. We have a positive view of Q1/24 results as Real Estate trends continue to improve; the Wealth/Insurance business is scaling up nicely; BAM is having strong fundraising performance; and improving monetization market conditions should improve NAV growth and the discount to NAV via surfacing value and driving higher realized carried interest. BN is our #3 best idea, reflecting positive trends and fundamentals and an attractive valuation (19% discount to NAV with the current share price implying an 84% discount to BN’s Real Estate assets). Increasing price target to US$53 (was US$51), maintaining Outperform.
Key points:
Q1/24 DE/share (before realized carried interest and disposition gains) of US$0.63 was slightly below our US$0.65 forecast, primarily due to higher- than-forecast corporate expenses. Q1/24 DE/share (including realizations) of US$0.77 was above our US$0.73 forecast.
Real Estate results continue to improve, having shown signs of stabilization in Q2/23 and Q3/23 with early signs of improvement in Q4/23 and Q1/24. Real Estate Q1/24 reported Operating FFO (OFFO) from Core and Transition & Development (T&D) was -US$18MM, which was better Y/Y vs. -US $22MM in Q1/23. Q1/24 NOI of US$827MM was also better Y/Y vs US $810MM in Q1/23.
Wealth/Insurance continued to see growth, with DE increasing +8% Q/ Q to US$273MM from US$253MM in Q4/23 and up +88% Y/Y from US $145MM in Q1/23. With the close of American Equity Life (AEL), BN thinks annualized DE increases from US$1.0B to US$1.4B and that over the next 18-24 months, this could reach US$2.0B annually as the investment portfolio is optimized. Current monthly new flows are ~US$800MM and BN thinks it could reach US$1.5B/month in the next 18-24 months.
Increasing 12-month target to US$53/share (was US$51), maintaining Outperform rating. The higher target reflects a higher-than-forecast Q1/24 NAV. Our NAV has been adjusted to include the recently closed AEL acquisition by BNRE.