Post by
retiredcf on Feb 10, 2023 1:59pm
RBC Report
Their upside scenario target is US$64.00. GLTA
Outperform
NYSE: BN; USD 36.69
Price Target USD 54.00 ↑ 53.00
Brookfield Corporation
You Ain't Seen Nothing Yet?: Willingness to pursue a giant acquisition could be interesting. Solid Q4/22 results
Our view: Overall, Q4/22 results were good with Asset Manager Fee Related Earnings (FRE) ahead of forecast, partly tempered by Operating FFO below our forecast. The BAM spinoff was successful with fundamentals remaining strong (e.g., continued positive fundraising momentum). As we discuss below, we think BN’s disclosure that it’s open to making a substantial acquisition could be an interesting development if it comes to fruition. We believe BN’s shares are attractively valued trading at a significant 26% discount to NAV. We think the current share price reflects zero value for its Real Estate investments (IFRS value of ~US$20/share) (we took BN’s share price and backed out net debt, publicly-traded investments and non-real estate private investments using their IFRS value, which implied almost no value for BN’s Real Estate investments).
Key points:
Our thoughts that BN was “very close” to acquiring a US$30B business. BN disclosed it was “very close” to acquiring a US$30B business 1.5 years ago that wasn’t an asset manager (like Oaktree), but an operating company. BN indicated a willingness to consider huge acquisitions of this size and that it could involve participation from one of their investment funds and/or 3 party co-invest. Our thoughts on BN being open to doing a substantially larger acquisition than historical: (1) depending on the structure, such a transaction might positively impact BAM’s FRE (management fees, possibly carried interest); and (2) for a deal that size and the significant capital required by BN (BN suggested its portion might be ~US$10B), we think the capital gain potential would need to be significant and lower risk.
BN continues to buy back shares and indicated a tender (we assume this means a substantial issuer bid) is possible if the discount to NAV remains wide. Since the BAM Asset Manager spin-off in mid-December 2022, BN spent ~US$120MM repurchasing shares (providing context, BN spent US $189MM in Q4/22 and US$687MM in 2022 repurchasing shares).
Q4/22 Operating FFO/share (OFFO) of US$0.68/share was slightly below our US$0.71/share forecast and was down -7% Y/Y. The negative variance was driven primarily by lower-than-forecast Invested Capital OFFO.
Q4/22 consolidated Fee Bearing Capital (FBC) (incl. Oaktree at 100%) was US$418B, +3% Q/Q from US$407B in Q3/22 and +15% Y/Y from US$364B in Q4/21.
Increasing target to US$54 (was US$53) and maintaining our Outperform rating. The increased target primarily reflects NAV adjustments based on Q4/22 results and higher share prices of publicly-traded investments could involve participation from one of their investment funds and/or 3 party co-invest. Our thoughts on BN being open to doing a substantially larger acquisition than historical: (1) depending on the structure, such a transaction might positively impact BAM’s FRE (management fees, possibly carried interest); and (2) for a deal that size and the significant capital required by BN (BN suggested its portion might be ~US$10B), we think the capital gain potential would need to be significant and lower risk.
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