Our view: We continue to believe that there is attractive upside in BN’s shares with respect to closing the discount to our estimated net asset value (NAV). In particular, we point to potential future actions that should be catalysts for share price improvement, namely asset monetizations at BN (i.e., real estate) and its various affiliates, as well as the continuation of its plan to allocate capital to share buybacks. While 2024 has been a strong year, management noted on the conference call that “2025 should be better.”
Key points:
Leverage to an improving asset monetization environment. Following on its September Investor Day commentary (please click here), management continues to highlight what it sees as an improving asset monetization environment. Between the potential crystallization of value associated with real estate sales for BN and our expectation that asset sales should drive the value of its listed affiliates higher, we believe that BN’s shares have attractive leverage to an improving asset sale environment.
Continuing its plan to allocate capital to share buybacks. In Q3/24, Brookfield Corporation returned roughly $203 million of capital to shareholders, which included $79 million of share buybacks. Over the last 12 months, the company has repurchased about $1 billion of its stock.
Results in Q3/24 were slightly ahead of our forecast. Brookfield Corporation’s Q3/24 distributable earnings (DE) per share (before realized carried interest and disposition gains) were $0.80, above our estimate of $0.75. After realized carried interest and disposition gains, DE/share was $0.84 versus our estimate of $0.83, with the variance primarily being driven by the stronger-than-expected core operating results, partially offset by lower-than-forecast realized carried interest.
Raising 2024 and 2025 DE/share estimates; introducing 2026 forecast.
Reflecting the Q3/24 results, trends observed as part of the quarterly results, and recently announced transactions, we raise our 2024 and 2025 DE/share estimates (before realized carried interest and disposition gains) to $2.92 and $3.49 (from $2.89 and $3.45), respectively. We introduce our 2026 forecast, which includes DE/share of $4.09, representing a roughly 17% increase from our 2025 estimate.
Valuation: Raising price target to $67 from $56. Our new price target continues to use a net asset value (NAV) framework but now incorporates our estimated valuations one-year forward for the Listed Affiliates as well as BAM. We use a 30% discount to the IFRS value for the real estate business, as well as a discount to our estimated NAV one-year forward of 15% (i.e., roughly consistent with the 5-year average), to arrive at our price target.