Post by
retiredcf on Nov 11, 2024 7:43am
TD Raises Target
These are USD targets. GLTA
Q3/24 PREVIEW; MARKET BACKDROP INCREASINGLY FAVOURABLE
THE TD COWEN INSIGHT
Our target price has increased to $74.00 vs. $63.00, largely as a follow-through to our recent decision to value BAM based on a 27.5x FRE multiple vs. 22.5x previously (link). Despite the magnitude of the $11.00 increase, there are still other elements of our target price we could revisit with more optimism, which could potentially increase our target price by $8.00-$11.00 or 11-15% (Figure 4).
Event
BN will report Q3/24 results on Thursday, November 14 (pre-market).
Impact: NEUTRAL
Our 2024E-2026E DE/share estimates have increased marginally, based on upside revisions to our BAM forecast, post a Q3/24 earnings beat (link). The large increase in our target price is primarily due to our recent decision to value BAM based on a 27.5x FRE multiple vs. 22.5x previously, to reflect improving industry fundamentals, anecdotal evidence that investors are starting to look beyond 2026, and upcoming changes to BAM's corporate structure, which should support multiple expansion for BAM (link).
A higher TD Cowen BIP target price and unit-price appreciation for BBU also slightly contributed to the increase.
Our Q3/24 DE/share forecast of $0.88 is above the consensus of $0.83. We are looking for an ~20% y/y increase in DE excluding realizations, based on growth in insurance and asset management, and a relatively easy prior-year comparable in real estate (BPG). We are modelling $100mm of realized carried interest, which is a big step-up vs. $51mm in Q2/24, and this step-up might be optimistic, because deal announcements have picked up but realized carried interest is based on closed transactions, which generally lag deal announcements by a few months.
Insurance earnings should benefit from a full quarter of AEL. In Q2/24, which included just <2 months of AEL, BN reported an all-in spread of ~170bps, reflecting ~200bps on the legacy portfolio and ~150bps at AEL. BN expects to bring AEL up to ~200bps, but this will likely occur gradually over ~2 years, as the AEL portfolio is reallocated.
Asset management earnings should reflect a higher y/y contribution from BAM, despite a slightly lower ownership stake y/y (~73% vs. ~75%) due to the BAM shares used to partly fund the AEL deal. We also expect higher y/y distributions from BN's LP stakes in its own funds (mainly the BSREP funds), but those distributions are inherently lumpy.
Carried interest should be poised to inflect meaningfully higher in 2025+, as deal velocity re-accelerates following a quiet two-year period. BN expects to realize $25bln of net carried interest over the next 10 years and $5bln over the next 3 years.
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