Brookfield Asset Management Inc (TSX: BAM.A) owns and manages commercial property, power, and infrastructure assets. Its investment focus includes Real Estate, Infrastructure, Renewable Power and Private Equity. Brookfield has the greatest amount of assets in Real Estate and generates the most revenue through Private Equity. 

Key highlights

• Started FY 2022 on a strong note: The company posted solid financial results for Q1 2022, with a 33% increase in revenue to USD 21,882 million compared to USD 16,410 million in pcp. In the present economic context, the group's performance is increasing due to its vast worldwide holdings of inflation-protected cash-generating assets. Distributable profits were at USD 1.2 billion, driven by asset management franchise expansion and good underlying performance across the companies.

• Clocking higher Fee-related earnings: Higher Fee-related earnings of USD 501 million in Q1 2022 and USD 2.0 billion for the LTM, represented an increase of 21% and 31% over the prior periods, respectively. This higher fee related earnings were driven by strong fundraising efforts, including contributions from the latest round of flagship funds, valuation increases across its perpetual affiliates, and capital deployed.

• Rise in equity accounted income: The company achieved greater equity accounted income in Q1 2022, which climbed by USD 175 million to USD 843 million, compared to USD 668 million in pcp. This rise was driven mostly by mark-to-market gains in the reinsurance business and valuation improvements in retail and office portfolios held in equity accounted investments.

• Considering publicly listing of Asset Management Business: The company is considering putting a portion of its asset management division on the open market. The group will separately list and distribute a 25% stake to shareholders, with the process expected to be completed by 2022. The asset management division of the company is one of the world's largest alternative investment organizations, handling the capital of over 2,000 worldwide institutional clients and a growing list of high-net-worth individuals.

• Steady funds from operations: The company’s fund from operations stood at USD 1.6 billion in the first quarter of FY 2022 and USD 6.3 billion over the LTM. Whereas its operating fund from operation stood at USD 1.1 billion in the quarter and USD 4.1 billion over the LTM, 43% and 23% higher than the comparative periods, respectively. An increase in operating FFO was mainly due to due to strong asset management earnings, contributions from recent large-scale acquisitions and the benefit of an increased ownership in our real estate business due to the privatization of BPY.

• Solid liquidity: The company increased its total liquidity from USD 5.1 billion to USD 6.2 billion as on March 31, 2022, whereas on a group basis, it holds deployable capital of approximately USD 84.8 billion, consisting of USD 14.9 billion of core liquidity and USD 69.8 billion of uncalled private fund commitments.

Source: Company Filing 

Risks associated with investment

The group's financial performance is vulnerable to a variety of external and internal factors that can harm the company's performance. Some of these risks include investment returns that are lower than expected, the impact or unanticipated impact of general economic, political, and market factors in the countries where the company operates, the behavior of financial markets, including fluctuations in interest and foreign exchange rates, and global equity adequacy.

Financial overview of Q1 FY2022

Source: Company Filing

• Strong revenues: The company’s revenue in Q1 2022 increased by 33% to USD 21,882 million, compared with USD 16,410 million in pcp. Revenues increased primarily due to organic growth initiatives across the businesses and from acquisitions completed in the last twelve months across most segments.

• Rise in direct cost: The direct cost as a % of revenue in Q1 2022 increased to 77.2% against 74.3% in pcp. Overall, the direct cost expenses in the reported period increased to USD 16,884 million, against USD 12,187 million in pcp.

• Slight decline in net income: In the reported period of Q1 2022, the company clocked slight lower net income at USD 2,960 million against USD 3,776 million in pcp. This deflection was primarily due to higher interest cost, higher depreciation expense and increased income tax.

Top-10 Shareholders 

The top 10 shareholders have been highlighted in the table, which forms around 38.29% of the total shareholding. Brookfield Asset Management, Inc. and Partners Value Investments, L.P. hold the company's maximum interests at 7.94% each respectively. The company's institutional ownership stood at 71.20% and ownership of the strategic entities stood at 11.50%. Higher institutional holding boosts the confidence in the mind of retail investors. 

Valuation Methodology (Illustrative): Price to Book-Value

Stock recommendation 

The company's financial performance has been very impressive in the first quarter of FY 2022, thanks to its substantial worldwide holdings of inflation-protected cash-generating assets, its results are accelerating in the present macro climate, which is a critical positive. Distributable profits were USD 1.2 billion, driven by asset management franchise expansion and good underlying performance across the companies. Furthermore, fundraising momentum is still robust, with fee-bearing capital standing at USD 379 billion at the end of the first quarter of 2022.

We believe that the company's business will continue to expand in the future. Furthermore, the company's scale and operational competence, as well as its cash-generating profile and inherent inflation protection, will provide a significant tailwind through 2022. Therefore, based on the above rationale and valuation, we recommend a "Buy" rating at the closing price of CAD 62.97 as on June 8, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on June 8, 2022). Source: REFINITIV, Analysis by Kalkine Group

*Recommendation is valid on June 9, 2022, price as well.

 Technical Analysis Summary

Disclaimer

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