Conservative Valuation

The price has dropped quite significantly from the peak to $37.90 so I did a rough valuation, based on the methodology from this post on the old board with some adjustments (check that old post, which has a lot of good analysis). The methodology is along the same lines of how Brookfield comes up with the plan value except with different multipliers.

My very conservative riff on it is to value Brookfield using three parts:

  • Invested capital IFRS valuation: Use the much more conservative IFRS number that relies less on Brookfield’s optimistic estimates.
  • Average realized net carried interest x 15: Use an average realized net carried interest to make it more earnings-like. Use 15 multiplier (instead of 10 since it’s after cost).
  • Fee-related earnings x 15: Use a conservative 15 multiplier.
  • (Omit: Unrealized carried interest): Unrealized carry should be included in future realized gains, although it may tell you something about the growth rate.

All the data can be easily looked up in the latest Q2 supplemental. Here’s a ball park of what that gives you:

  • Invested capital: 36.9 B
  • Avg 5 year net CI: 0.5462 B x 15 = 8.2 B
  • Fee-related earnings: 1.951 x 15 = 29.3 B
  • Shared outstanding = 1.64 B
  • Valuation share price: $45.37

Which is 16% discount from Friday’s close. Going back 5 years using the same methodology (using prices around their Q2 reports), I see discounts ranging from -15% (overvalued) to 25% (undervalued), which is not so far out of line compared to the plan value.

In any case, I’m tempted to buy especially with the upcoming distribution of the manager but there’s been so much volatility recently, and I’d kind of like to see something closer to a 20-25% discount using this metric. Of course, if they are even close to the growth in their plan value, it’s obviously much more undervalued. Let’s hope it goes down some more!

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