Post by
retiredcf on Aug 11, 2024 1:07pm
RBC
Their upside scenario target is US$62.00. GLTA
Outperform
NYSE: BN; USD 44.44
Price Target USD 56.00 ↓ 57.00
Brookfield Corporation It’s lights out and away we go
Our View: BN is our #3 best idea as we like the company’s strong fundamentals, still significant discount to NAV and NAV growth potential. The shares trade at an 18% discount to NAV. We believe the current share price is valuing BN’s Real Estate investments at a substantial 80% discount to IFRS fair value.
Key points:
Thoughts post Q2/24 results: Notwithstanding investor concerns regarding BN’s Real Estate exposure in the past couple of years, we think BN’s fundamentals have been positive overall. If monetization market conditions continue to improve, we think BN’s share price is well positioned to benefit for several reasons. First, increased monetization activity should drive significantly higher realized carried interest revenues, which would coincide with increased return of capital for BN to re-deploy into new investments, share buybacks, etc. and for LP investors, who could commit new capital to future Brookfield investment funds. Second, increased monetization activity is likely to benefit BAM/BIP/BEP/BBU’s share prices, which in turn benefit BN directly (via BN’s ownership stakes) and indirectly (via management fees and IDRs/performance fees paid to BAM by BIP/ BEP/BBU). And third, to the extent we see stronger M&A activity in Real Estate, especially monetizations within the Transitional & Development portfolio done at or a premium to IFRS fair value would likely alleviate investor concerns regarding the valuation of BN’s Real Estate investments and therefore help drive both higher NAV growth but also narrow the discount to NAV.
Q2/24 Distributable Earnings(DE)/share (before realized carried interest and disposition gains) was US$0.71, right in line with our forecast. DE/share (after realized carried interest and disposition gains) was US $1.35, well ahead of our US$0.74 forecast and vs. US$0.77 Q/Q and US $0.75 Y/Y. The positive variance reflected higher-than-forecast disposition gains relating to BN's disposition of 200bps of ownership in the Asset Management business used as consideration in acquiring AEL.
Real Estate results have stabilized and are showing gradual signs of improvement. Real Estate Q2/24 reported Operating FFO (OFFO) from Core and Transition & Development (T&D) was +US$31MM, which was higher Q/Q vs. -US$18MM in Q1/24 and flat Y/Y vs. +US$32MM in Q2/23.
Wealth/Insurance continued to see growth, with DE increasing to +US $292MM, up Q/Q from US$273MM in Q1/24 and up Y/Y from US$160MM in Q2/23. Including AEL, Wealth/Insurance originated US$3.5B of annuity sales in Q2/24, bringing total assets to >US$110B.
Trimming 12-month price target to US$56 (was US$57) and maintaining our Outperform rating. The slight target reduction reflects the Q2/24 NAV being marginally below our forecast.
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