Brookfield Asset Management Inc.
(BAM-N, BAM.A-T) US$54.65 | C$69.71
Q4/21 Earnings Preview; DE is Now our Primary Earnings Metric Event
We are increasing our target price to $77.00 from $75.00 and converting to distributable earnings as our primary earnings metric ahead of BAM's Q4/21 earnings release on Thursday, February 10 (pre-market). The increase in our target price reflects a roll-forward in our target-price horizon by one quarter and a modestly higher outlook for fee-related earnings.
Impact: SLIGHTLY POSITIVE
Q4/21 Preview: We are looking for DE of $0.74/share, slightly below the consensus estimate of $0.77 (or $0.73, excluding an upside outlier). We expect 30%+ y/y growth in fee-related earnings, reflecting higher market capitalizations for the perpetual affiliates, flagship fundraising progress, and an ~$80mm incentive distribution from BBU. We are modelling similar net realized carried interest vs. Q3/21 and no gains on the sale of principal investments, although there should be a gain on the sale of BAM's final ~1% interest in West Fraser.
Positive Outlook: BAM's share price has not been immune to investor concerns regarding inflation/interest rates, but we believe that BAM's portfolio is well- positioned for a period of elevated short-term inflation, accompanied by a gradual rise in interest rates to levels that remain very low by historical standards (~3% U.S. risk-free rate), with good pricing power and/or inflation indexation, largely fixed-rate debt, and limited current debt maturities. Institutional fund-flows into alternative assets show no signs of slowing, and the industry has only just begun to tap the retail wealth market. BAM expects to hold a final close on $15bln+ for its inaugural Global Transition Fund by March, up notably from the $12bln hard cap contemplated last July, and both BAM and Oaktree closed real-estate debt funds in Q4/21, which were significantly larger than their predecessors. In addition, although public market valuations have come under some recent pressure, the private markets tend to be much less influenced by short-term factors/sentiment, and the environment remains very favourable for harvesting mature investments, thereby crystallizing the associated investment performance and related carried interest recognition, which is, in turn, supportive of fundraising activity.
TD Investment Conclusion
We believe that an investment in BAM provides exposure to a world-class asset- management franchise and a high-quality portfolio of real assets.