Author Topic: BAM - Brookfield Asset Management  (Read 512043 times)

petec

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Re: BAM - Brookfield Asset Management
« Reply #560 on: August 08, 2018, 09:13:06 AM »
EDIT: Is this similar to float? 

Precisely. You take a lump sum up front and have to pay out a stream of cash flows later. If your investment profits are greater than the cash flows you have to pay, you keep the difference.
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cubsfan

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Re: BAM - Brookfield Asset Management
« Reply #561 on: August 09, 2018, 04:45:38 AM »
Heck of a great letter here from Bruce Flatt on Q2 results and outlook for BAM:

https://bam.brookfield.com/~/media/Files/B/BrookField-BAM-IR/letters-to-unitholders/2018/q2/F%20-%20BAM%20Q2_2018_Ltr_to_Shareholders.pdf

Great section on valuation. Flatt is so impressive.

chrispy

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Re: BAM - Brookfield Asset Management
« Reply #562 on: August 09, 2018, 04:51:11 AM »
Looking forward to reading it after work!

The last few sentences of the press release:

"We are currently generating over $2 billion of free cash at the corporate level on an annual basis, with few capital requirements, and the amount is growing rapidly.

We have flexibility to use this capital in several ways. One area is to invest in new strategies directly on our balance sheet while we build up a track record prior to investing our client's capital. Credit has been a particular area of focus and this will continue. As our cash resources grow we continue to look further to shrinking the shares outstanding at Brookfield over time through repurchases."

villainx

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Re: BAM - Brookfield Asset Management
« Reply #563 on: August 09, 2018, 10:14:12 AM »
Anyone have any thoughts on Enercare acquisition?  Still trying to wrap my head around why, especially within BIP.  Seems better fit within BBU, if anything.
« Last Edit: August 09, 2018, 10:16:24 AM by villainx »

spark411

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Re: BAM - Brookfield Asset Management
« Reply #564 on: August 09, 2018, 11:00:34 AM »
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.

rkbabang

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Re: BAM - Brookfield Asset Management
« Reply #565 on: August 09, 2018, 11:08:06 AM »
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.

And he said that it was a "medium term" goal to reduce share count to less than it was in 1999.  Which means buying back more than 10% of existing shares.

StevieV

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Re: BAM - Brookfield Asset Management
« Reply #566 on: August 09, 2018, 12:19:16 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.

I understand the illustration for simplicity's sake.  However, I don't care for this particular valuation framework.

First, it glosses over a big part of the business - the net tangible invested capital.  Is the IFRS valuation correct?  Is the stock market valuation correct?  Are the companies growing?  What is the outlook?

I agree that the asset management side is undervalued.  However, I'm not sure about the multiples used: "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."  Maybe that would be appropriate, but I am not aware of any alt getting those multiples today.

Plus, there is a disconnect to me when you accept the market multiple for publicly listed subsidiaries, then later suggest the market severely undervalues the asset management side of the business.  If the market is so wrong on the asset management valuation, why should I trust it with the listed subs.

chrispy

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Re: BAM - Brookfield Asset Management
« Reply #567 on: August 09, 2018, 12:38:41 PM »
With regards to the market price of the partnerships, BPY believes the market undervalues them and BAM owns more then half.

cubsfan

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Re: BAM - Brookfield Asset Management
« Reply #568 on: August 09, 2018, 12:42:24 PM »
I'm actually wondering if we are reading the same documents..

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

StevieV

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Re: BAM - Brookfield Asset Management
« Reply #569 on: August 09, 2018, 01:12:48 PM »
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.