Brookfield Corp Now Manages $1 Trillion of Assets

Brookfield Corp BN reported a great Q2 earnings with its asset management arm grew to $1 trillion AUM, with fee bearing capital grew 17% to $514 billion. TTM Distributable earnings (DE) before realization grew 8% from $2.56 a year ago to $2.77 per share, indicating a 16 price/DE ratio.

This may look like a slow growth rate, but if we look at the DE after carried interest realization, which is $3.67 per share, grew 12.6% from a year ago and gives a P/DE ratio of only 13.6. I think this is a very cheap valuation for a company is growing 10% per year and have a great track record.

Here are what I like about the stock:

$800 million Share buyback in the first half of 2024, that’s 1% of total shares outstanding. At current low stock price this should result in high return on capital.
Wealth solution (insurance) business TTM earnings grew by 57% from $634 million to $1 billion, it is now 17% of the total earnings
$62 billion of liquidity at the corporation level to take advantage of any opportunities
Core real estate achieved 3% growth in same-store net operating income. Office real estate performance has been a concern for BN investors but it seems to be holding up well.
Insider Brian Lawson bought CA$9 million worth of shares at around CA$55 per share, and there are no significant insider selling, which is a good sign that the stock is undervalued

I estimated the value of BN stock should be about $56 (CA$77), indicating a 26% discount and a 15% CAGR for the next 5 years. I used DE before realization to run a conservative DCF calculation:

Latest TTM DE (before realization) $4.4 Billion
DE growth rate of 10% (5YR AVG 10.9%, note I ignored the BAM spin off so the actual 5-year growth rate should be higher)
0% Share dilution (5YR AVG dilution is 1%, but bought back 2.8% annually in recent 2 years)
Future Price/DE ratio of 15 (5YR AVG 16.9)
Discount rate of 10%

Note that the above valuation didn’t count the $10 billion unrealized carried interest. If BN is able to realize all of it, it will add $6 (CA$8) of value to every single share. I will personally continue buying the stock every month.

If you are interested in how I value stocks using the DCF model, be sure to check out this recent video where I walk you through the process step-by-step: https://youtu.be/flzfqXZBxNg

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DISCLAIMER: Solofire is not a registered financial advisor. This post contains author's personal opinion only and it should NOT be considered financial advice.