Brookfield Asset Management Voting Ord Shs Class A T.BN.PF.J

TD Upgrade

[retiredcf]

Raise their target to US$79.00; it's also on their Action Buy List. GLTA

Brookfield Asset Management Inc.

(BAM-N, BAM.A-T) US$59.72 | C$76.00

Q4/21 DE/Share Beat; Potential Spin-out of Asset Manager Event

BAM reported Q4/21 DE of $0.80/share, a beat vs. the Street/TD at $0.73/$0.74, largely reflecting higher-than-expected disposition gains on principal investments.

Impact: POSITIVE

• Strong Q4/21 Results: Core DE increased 23% y/y, on 34% growth in fee-related earnings and higher distributions from principal investments. Fee-bearing capital stands at $364bln on the back of record private fund inflows of $71bln during 2021, including $12bln for the fourth flagship real-estate fund and a $16bln final close for the latest opportunistic credit fund. BAM recognized a record $1.7bln of gross carried interest in 2021, and despite that strong realization activity, the gross unrealized carried interest balance increased 69% y/y and 15% q/q to $6.8bln.

• Transition Fund: The Global Transition Fund should soon hold a final close on $15bln, establishing BAM as a first mover in an emerging vertical. The fund aims to generate strong risk-adjusted returns and hit a meaningful decarbonization target, with two major areas of focus: 1) adding clean energy to the electricity grid on behalf of corporate clients, such as Amazon, Enbridge, and Scotiabank; and 2) providing energy/decarbonization solutions to businesses/governments, with a focus on energy-intensive sectors, such as steel, cement, chemicals, and utilities.

• Asset Manager Spin-out: Recognizing a public-market preference for capital- light/pure-play asset managers, BAM is contemplating spinning out part of its asset management franchise. Based on comparable valuations, the company estimates a standalone value of ~$70bln-$100bln (~$45.00-$60.00/share), which brackets our target valuation of $85bln. A partial spin-out should attract a higher value for the asset manager, while preserving the flexibility provided by BAM's balance sheet. Investors who want exposure to the asset manager, as well as the underlying real assets, could remain BAM shareholders, and investors who prefer simplicity could own the pure-play asset manager. Although it is still early, our sense is that the asset manager would offer a high dividend payout ratio, while the surviving BAM entity would place more emphasis on long-term capital appreciation.

  TD Investment Conclusion

  We believe that an investment in BAM provides exposure to a world-class asset management franchise and a high-quality portfolio of real assets.

[BuccOfHormuz]

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