I listened over the earnings call and just point out some of the interesting parts, and updated the IV10/price ratio at the end.
- Even with rate hikes, they remain lowish historically and expect them to settle in a historically lowish range.
- Record fund inflows ($56 billion) over the quarter
- All underlying business are “essential” in nature, highly cash generative, high margins and inflation protected.
- Sold $21 billion of assets at premium valuations and half of these sales were in real estate, generating exceptional returns.
- Distribution of fee business (as a publicly traded entity) going well and on track.
- “Brookfield Asset Management” will be renamed “Brookfield Corporation”. The fee business, which they own 75% of, will be called “Brookfield Asset Management Limited”. Think of “Brookfield Corporation” as the main business. Expect the fee business to continue growing well and important part of Brookfield Corporation.
- Flatt explained that we will possibly add businesses into Brookfield Corporation at times, where we would not have been able to add them in with our previous structure. Our job is to deploy cash into the various parts of our business for the best return, and we have more flexibility by having publicly traded entities. Continue to think of the Brookfield Corporation as a co-investor for the funds that they have, continuing BAM’s traditional way of operating.
- Flatt commented that there is an enormous amount of capital required for critical infrastructure (including energy for Europe) - governments don’t have it, and institutions do.
Despite the positive words, when looking at the raw data there is excellent year-on-year improvement, but not an important improvement over the previous quarter. The trailing fee related earnings were $2 billion which is unchanged from last quarter. Shares outstanding were about the same. Intrinsic value is going up (for example assets under management are growing, and cash is rolling in) but my model looks at capitalised fees plus the book value, and that hasn’t risen over the quarter. I agree with Bruce Flat that rates are likely to remain historically low for very long. Rates are are not decided by market forces but simply selected, and there is far too much private debt today around the world to allow high rates to be selected, unless debt jubilees are permitted to be discussed, which they are not.
What has changed lately is that BAM’s quote has risen 21% over just the last month, resulting in a major deterioration of the IV10/price from over 4.2 down to 3.5. BAM is now great to own (anything with a ratio over around 3.2 I generally consider “great”, but BAM is longer “fantastic” as they were four weeks ago).
Supplimentary info used for these calculations:
BAM – Brookfield Asset Management Shares outstanding 1638 Book value per share today 24.16 Fee business (25 x “Fee related earnings” excl. carry) 30.53 IV0. Total value, 1.0 x book, plus fee business 54.68 Accumulated annual value generation including dividends 13.00% IV10 185.62 Price today 53.5 IV10/price 3.5
Did anything in the earnings release cause the business to be worth 21% more than it was 4 weeks ago? Absolutely not, and that is the nature of publicly traded markets.