August 12, 2022
Brookfield Asset Management Inc. Okay (okay)...alright...it's About BAM Time
Our view: BAM reported solid Q2/22 results, which we think underscores the strength of the Brookfield franchise. Although financial metrics (OFFO and FRE) were in line with our forecast, the evidence suggests BAM is not facing fundraising issues certain players in the industry are facing as BAM fundraised US$56B since Q1/22. The asset manager spin-off remains on track to be done by year-end, which we view as a positive for the stock. Despite an uncertain macro outlook, we think BAM offers investors an attractive blend of defensive attributes but also significant NAV-growth driven valuation upside.
Key points:
Q2/22 Operating FFO/share (OFFO) of US$0.69/share was right in line with our US$0.70/share forecast, which was up +38% Y/Y.
Q2/22 consolidated Fee Bearing Capital (FBC) (incl. Oaktree at 100%) was US$392B, +3% Q/Q and +21% Y/Y. The +3% Q/Q growth in FBC was primarily due to Credit and Other (including insurance solutions) strategies (+6% Q/Q) whereas the +21% Y/Y growth in FBC was driven by double-digit growth across all strategies.
BAM confirmed it remains on track to complete the spin-off of its asset management business by the end of 2022. As a result, BAM will be renamed Brookfield Corporation and the new asset manager will be named Brookfield Asset Management Ltd. The asset manager’s Board has Mark Carney as Chair, Bruce Flatt, the founders of BAM’s real estate, private equity and infrastructure businesses + 7 independent Directors. The asset manager’s management is Bruce Flatt as CEO; Connor Teskey as President (retains existing roles in Renewable/Transition); Bahir Manios as CFO (currently Managing Partner, Infrastructure and former BIP CFO); and Anuj Ranjan as President of Private Equity (currently Managing Partner, Head of Business Development). BAM also announced Nick Goodman as President of Brookfield Corp. and retains his CFO title.
Other key takeaways: (1) BAM intends to be active monetizing assets in H2/22 at “strong values”; (2) fundraising added US$56B since Q1/22 with BAM at ~US$75B of its US$100B target for its flagship funds (LP demand greatest for Infrastructure and Renewables/Transition, then Real Estate, then Private Equity); (3) BAMRe has US$4B of equity capital that >US$40B of insurance assets that generate US$400MM in annualized distributable earnings (DE)(US$50MM is management fees) and when excess capital is deployed, BAM estimates DE to be >US$800MM/year.
Increasing target to $66 (was $63), but maintaining our Outperform rating. The higher target reflects a higher-than-forecast Q2/22 NAV.