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retiredcf on May 07, 2024 8:51am
TD
Have a US$62.00 target. GLTA
Q1/24 PREVIEW; AEL CLOSING A KEY MILESTONE; RE FUNDAMENTALS GRADUALLY IMPROVING
THE TD COWEN INSIGHT
BN's market cap exceeds the market value of its stakes in BAM/BEP/BIP/BBU by only ~ $2.00/share. Therefore, we continue to see significant upside optionality in its real estate and insurance holdings, which have IFRS values of ~$19.00/share (undiscounted) and ~ $4.00/share, respectively, prior to ~$10.50/share of corporate leverage. The unrealized carried interest balance is a further ~$4.00/share.
Event
BN will report its Q1/24 results on Thursday, May 9 (pre-market).
Impact: NEUTRAL
Q1/24 Results: We have revised our forecast to reflect 1) a somewhat slower-than- expected start to the year for capital deployment/asset sales at BAM, and lower market caps for BEP/BIP/BBU (link); 2) corporate debt issuance at BN in late-February; and 3) a more accurate seasonal profile for certain lumpier forecast items, e.g. investment income, residential development, etc. Our full-year estimates for 2024/2025 are broadly unchanged, based on peer commentary suggesting that transaction velocity is clearly improving, which should, in turn, be supportive of fundraising. Our revised Q1/24 DE/ share estimate of $0.73 is marginally below the consensus estimate of $0.74.
U.S. Insurance Platform Complete: The recent closing of the AEL acquisition is a key milestone that should increase insurance AUM to >$100bln, establish BN as a top-three U.S. annuity writer, and enable the company to achieve its five-year targets largely through organic growth, i.e., by underwriting its own liabilities vs. taking on liabilities originated by third parties. BN has expressed potential interest in entering the insurance market through acquisition in the U.K., Europe, Japan, and/or Hong Kong, which would be incremental.
Real Estate Fundamentals Gradually Improving: A few of BAM's peers, most notably BX, have expressed the view that commercial real estate values are bottoming, which should set the stage for increasing transaction velocity. Improving sentiment on real estate should be positive for BAM/BN, as real estate comprises ~20% of BAM's fee-bearing capital, of which ~80% relates to the successful BSREP fund series, other long-term/ perpetual funds, and co-investments, and only ~20% relates to the on-balance-sheet BPG portfolio. In early-April, BN and ICD sold a 49% stake in ICD Brookfield Place in Dubai at what appeared to be a ~7% premium to BN's IFRS carrying value for its 50% holding as of June 30 (based on financial details reported by Bloomberg), which we take as a modestly positive data-point for BPG's core real estate portfolio.
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