Author Topic: BAM - Brookfield Asset Management  (Read 189332 times)

gokou3

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Re: BAM - Brookfield Asset Management
« Reply #570 on: August 09, 2018, 04:10:36 PM »
This was in the quarterly letter.   Shows management's perspective on how undervalued BAM is and their willingness to buy back shares...

The total equity across Brookfield is approximately $80 billion and the equity market capitalization for BAM
common shares is currently approximately $40 billion. The $40 billion can be broken into two components: our
net tangible invested capital, and our asset management business.
Taking IFRS values for our non-listed assets and real estate business and using stock market prices for our other
listed investments, the total tangible invested capital was $40 billion at the end of the second quarter. After
deducting $10 billion of long-term debt and perpetual shares, net invested capital was $30 billion.
Q2 2018 Letter to Shareholders Brookfield Asset Management Inc. 3
This scenario implies that $10 billion is being attributed to our asset management business. In our view, this
represents an extremely low value, based on the underlying financial metrics and the way most investors value
similar businesses. For example, this value represents 10 times our current estimate of annualized fee related
net earnings (approximately $1 billion), with no value attributed to the gross carried interest of $8 billion that we
stand to earn over the next 10 years if we achieve target returns. This is also based only on funds raised to date,
with nothing attributed to our ability to grow our franchise.
Stated differently, if our shares reflected a 20 times multiple for fee related earnings and a 10 times multiple for
net annualized carry on existing funds, this would add $18 billion of value, or $18 per share. This is close to a
50% increase over current stock market price. And this, still has no value attributed to the growth in our future
franchise, including larger and new funds.

Sorry for being dim, but how does Flatt get from $40B to $80B equity?  He seems to be arguing the IV of BAM should be $30B net asset value of owned assets and $10B+$18B for the asset management business, totaling $58B...


chrispy

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Re: BAM - Brookfield Asset Management
« Reply #571 on: August 09, 2018, 04:48:50 PM »
I believe the $80B accounts for BAM plus partnerships, etc

ValueMaven

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Re: BAM - Brookfield Asset Management
« Reply #572 on: August 09, 2018, 05:20:53 PM »
This is an epic quarterly letter.  What an undervalued stock. 

Decreasing share count, increasing IV, and BV...plus higher rev from fees...

Let's not forget BAM management own about 20% of the co too...

This was a really genius letter... I read it three times today!!

-VM

peterHK

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Re: BAM - Brookfield Asset Management
« Reply #573 on: August 10, 2018, 06:39:25 AM »
I'm actually wondering if we are reading the same documents..

Are the companies growing? What's the outlook?  It's all in there.

Maybe I posted before I read the letter thoroughly enough.  However, I'm not suggesting that the conclusion is wrong, or that they didn't discuss other things.  I simply don't like the valuation framework in the quoted section.  Specifically, somewhat setting aside the invested capital side in this specific valuation discussion section.

FWIW, I think that 20X FRE and 10X incentive may be appropriate valuations.  They are growing FRE at 34% and expect to be able to continue to grow at 20% going forward.  20X for FRE growing at 20% isn't rich.  I am also fine with 10X carry.  Maybe lumpy, but certainly valuable.  However, unlike the letter says, I don't believe that similar businesses are currently trading at those multiples.  I think I am right on that, but admit I haven't run those numbers on the competitors lately.

You can look at it similar to ONEX, backing out the implied AM business (high quality PE/CLO with incentive fees) from the share price. I haven't done the math recently, but I think it's traded at something like 10-15x net earnings depending on where the shares are at, plus valuing the unrealized carry at 1x, which is highly conservative.

I think Bruce might say that there aren't any similar businesses in the AM industry growing at 20% a year, plus carry, with secular tailwinds. Blackstone/KKR/Apollo trade at 11-15x earnings, Canadian AM peers trade at 11-14x (e.g CI Financial at ~11x or so), but none of those businesses is growing FRE at 34%, so a premium to that I think is warranted, though I don't know that 20x is the right number (I use 17-18x myself).

Shane

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Re: BAM - Brookfield Asset Management
« Reply #574 on: August 10, 2018, 07:13:42 AM »
What was the share count in 1999?

Jerry Capital

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Re: BAM - Brookfield Asset Management
« Reply #575 on: August 10, 2018, 07:27:48 AM »
10% lower

Shane

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Re: BAM - Brookfield Asset Management
« Reply #576 on: August 10, 2018, 09:42:14 AM »
10% lower

Weird - why not just say reduce to where shares were in 2009?

John Hjorth

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Re: BAM - Brookfield Asset Management
« Reply #577 on: August 10, 2018, 10:11:08 AM »
10% lower

Weird - why not just say reduce to where shares were in 2009?

Shane,

The 1999 figures are actually in the table in the shareholder letter, p. 3, lower part. 1999: shares : 905 M - 2018 [mid year] : 1,004 M. Ref. note 2 to the table, the 1999 figure is adjusted for four 3 for 2 stock splits since 1999 [, but not share buybacks, excersises of options etc., I suppose]. The actual fully diluted share count at YE1999 was 178,733,919, ref. Joel's BAM monster compilation [p. 44 [out of 13,840 [!]]].
« Last Edit: August 13, 2018, 05:19:12 AM by John Hjorth »
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Shane

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Re: BAM - Brookfield Asset Management
« Reply #578 on: August 10, 2018, 12:28:30 PM »
Thanks - I had missed that!

CorpRaider

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Re: BAM - Brookfield Asset Management
« Reply #579 on: August 13, 2018, 05:09:44 AM »
Seems like some of you guys are deep in the weeds on BAM.  Is BPR (the GGP successor REIT) going to have the same fee arrangement with BAM as BPY (expenses + management fee + incentive fee)?  I suspect that it will (although I'm not sure, but I don't remember that from going through the deal docs).  Didn't make it all the way through yet...not sure that I will.  Thanks!
« Last Edit: August 13, 2018, 11:15:14 AM by CorpRaider »