Brookfield is a work in progress. Today it is complex / messy. But that is the opportunity. The simplification process started with the splitting of the asset management business (BAM) and will continue with sales of real estate assets. Brookfield Corp (BN) is a ‘master fund.’ I.e. it holds the capital and makes decisions on allocating cash flows and recycling capital, with holdings in multiple public Brookfield entities as well as significant private holdings.
We are attracted to alternative asset managers in general as the structural tailwinds are strong.
Cyclically, alt managers should see earnings recover in 2024 and 2025 with M&A transactions and fund raising recovering.
For BN, we see a 20% IRR over the next 5 years based on: 15% NAV growth, plus 5% from closing of the 30% discount to NAV. (In line with shareholder returns over the last 20 yrs)
We believe exaggerated real estate fears are providing BN at a discount to our estimated fair value. Management has the cash flow and is motivated to close this discount, but it will take time.
Potential Upside: $65 (+60%)
Potential Downside: $31.50 (-20%) under a harsh scenario
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