Post by
retiredcf on May 10, 2024 8:34am
TD 2
Now have a US$61.00 target. GLTA
Q1/24 DE BEAT; WEALTH SOLUTIONS POISED FOR STRONG GROWTH
THE TD COWEN INSIGHT
Higher DE estimates reflect the AEL purchase, partly offset by slightly lower-than-expected core results at BN/BAM. Our target NAV declines by ~$1.00, based on higher corporate leverage. BN's market cap exceeds the market value of its stakes in BAM/BEP/BIP/BBU by only ~$3.00/share. Therefore, we still see significant upside optionality in its real estate/ insurance holdings and carried interest.
Event
BN reported Q1/24 results. DE of $0.77/share was an ~6% beat, largely due to higher-than- expected realized carried interest.
Impact: SLIGHTLY POSITIVE
Asset Manager: BAM's fee-bearing capital stands at $459bln, up 6% y/y. The company continues to benefit from its leadership positions in infrastructure, renewable power/ transition, and credit, all of which are in high demand currently. BAM is also seeing interest in its fifth opportunistic real estate fund pick up, as the potential upside in the asset class becomes more obvious, and investors seek increased exposure to it.
Carried Interest: BN recognized $183mm of carried interest in Q1/24, primarily due to credit fund realizations. The company is progressing further monetizations in real estate and renewable power/transition, but is still guiding to ~$400mm-$500mm of realized carried interest in 2024 for now, noting that the asset sales pipeline is somewhat front- end-loaded. Notwithstanding the carried interest recognized in Q1/24, the accumulated but unrealized carried interest balance (net) still increased marginally q/q to $6.3bln (~$4.00/share). Substantially all sales are being executed at prices in line with BN's carrying values.
Wealth Solutions: The wealth solutions business had a very strong quarter, generating spread-related earnings of $273mm. The acquisition of AEL brings insurance AUM
to >$100bln and makes BN one of the largest underwriters of annuities in the U.S.
The company indicated that, pro forma the AEL deal, annualized insurance cash flows should be $1.4bln vs. $740mm in 2023, and as the company repositions the investment portfolio, cash flows are on track to exceed $2bln over the next 18-24 months.
Capital Deployment: BN anticipates that a more normalized interest rate environment will test those who have relied primarily on multiple expansion/leverage to earn returns and will be an excellent period for capital deployment. The company has record deployable capital of ~$150bln, including ~$6bln of corporate liquidity.
Share Buybacks: BN has repurchased $700mm of shares YTD, adding ~$0.50 of value to each remaining share, and intends to continue allocating cash to share buybacks.
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