BAM - Brookfield Asset Management

[augustabound]

Brookfield investing in Mexico with partner Ross Perrot.

 

The price paid by Brookfield and its partner, Ross Perot Jr.'s Hillwood Development Co., to buy the company: $13.85 a share.

 

Or Google, "Canada Firm Places Bet on Mexico Border" to bypass the wsj paywall.

 

[WhoIsWarren]

Bronte Capital weighing in behind the report by our friend Roddy Boyd.

 

http://www.brontecapital.blogspot.ie/2013/03/promising-yield-roddy-boyd-on.html

 

He compares Brookfield to the Babcock & Brown and Macquarie infrastructure funds, both of which blew up or almost blew up in the crisis.  He also throws in a mention or two of Bernie Madoff for good measure.

 

I haven't looked closely at the reason why B&B went bust, but I suspect they were highly leveraged and short term funded.  Anyone have any experience with it?

 

For reference, BAM is roughly twice geared, has locked in funding about 5 years out.

 

 

[Kiltacular]

BAM made it through the crisis not only swimmingly but awesomely.

 

I don't own if (now) but have in the past.

 

Big respect for Bruce Flatt.  Hell, insiders own 20% of this company and it is run for the benefit of shareholders.

 

In another thread we were discussing what you might want to own in inflation.  Assuming Flatt is still there and insiders continue to have such a large ownership percentage, BAM is well positioned to handle an inflationary period for the reasons discussed in that thread.

 

Come on shorts, drive this thing down...beep, beep, beep.

[Myth465]

To be honest that was a good short article and highlights why I dont feel comfortable with BAM.

[giofranchi]

To be honest that was a good short article and highlights why I dont feel comfortable with BAM.

 

Myth465,

what about BAM answers to Mr. Boyd’s questions? I thought they were timely and clear enough. Do you have a different view?

 

Thank you,

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

 

[giofranchi]

Valuation Model For Brookfield Asset Management

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

valuation-model-for-brookfield-asset-management.pdf

[thepupil]

Please see my comment on the article. Mr Grossi does not deduct liabilities, double counts the property interests and overstates the GGP stake's value by about 100%. As a shareholder, I wish his estimate of NAV was correct, but it is not.

[WhoIsWarren]

Please see my comment on the article. Mr Grossi does not deduct liabilities, double counts the property interests and overstates the GGP stake's value by about 100%. As a shareholder, I wish his estimate of NAV was correct, but it is not.

 

Hi the pupil,

 

Would you mind posting up your reply in here....for those who don't have a seeking alpha login.

 

Cheers

[giofranchi]

Please see my comment on the article. Mr Grossi does not deduct liabilities, double counts the property interests and overstates the GGP stake's value by about 100%. As a shareholder, I wish his estimate of NAV was correct, but it is not.

 

Well, that’s exactly why we require a margin of safety! Because our calculation of NAV could be wrong! To sell below NAV means to be worthy more dead than alive… To sell 42% below NAV means to be 42% worthier dead than alive… It would be a HUGE margin of safety for a company that can boast a compounded annual return of 19% for the last 20 years… Even considering those valuation errors you have mentioned, I guess we are left with a good bargain anyway!  :)

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence.” - John Maynard Keynes

[thepupil]

Below is my reply on SA. Grossi's work is sloppy.  I have my own calc of NAV that I'll send later after some tweaking. Calcing BAM's NAV is not easy.

 

What about corporate level preffered, debt and other liabilities? This is about $7B+ you don't appear to be deducting. I own BAM and think its worth more than it is trading for, but not accounting for those liabilities is too aggressive.

 

Also, aren't you double counting their property interests? BPY holds BAM's interest in BPO, GGP, RSE etc. So you can't count both.

 

Also BAM has a ~20% interest in GGP, that is worth 3.8B. I think you are including the portion BAM controls thropugh a fund but does not own.

 

[WhoIsWarren]

Below is my reply on SA. Grossi's work is sloppy.  I have my own calc of NAV that I'll send later after some tweaking. Calcing BAM's NAV is not easy.

 

What about corporate level preffered, debt and other liabilities? This is about $7B+ you don't appear to be deducting. I own BAM and think its worth more than it is trading for, but not accounting for those liabilities is too aggressive.

 

Also, aren't you double counting their property interests? BPY holds BAM's interest in BPO, GGP, RSE etc. So you can't count both.

 

Also BAM has a ~20% interest in GGP, that is worth 3.8B. I think you are including the portion BAM controls thropugh a fund but does not own.

 

the pupil, thanks for posting that and I look forward to your NAV sheet.  Grossi's work very sloppy for sure, but if you're not careful with BAM the best of us can make mistakes with NAV adjustments due to the group's complexity.

 

Also, do you know where his valuation of the asset management business comes from?  He references "two-year average fee generation of about $410 million", but I can't reconcile this.  Besides, deciding on exactly which figure you use is a bit of a minefield -- should you include performance fees and capitalise these at 10x??  What about the advisory services and (net) construction service fees -- I'm not even sure these are included in management's own intrinsic value calculation. Anyone know?

 

Thanks

[thepupil]

After calling someone else's work sloppy I am posting an incomplete spreadsheet that is a little sloppy itself. I apologize but I hope this helps everyone get a better handle on BAM. I am sure some fellow shareholders can help fill in some gaps.

 

So on the right side of the sheet you will see BAM's calculation of intrinsic value* using their calculation for the IV of their assets and liabilities. On the left side you will see where I substitute publicly traded components for each of BAM's categories or as they like to call them "Operating Platforms".

 

According to BAM's estimates, they have ~$36B of assets and ~$7B of liabilities and common equity over $28B. When I substitute publicly traded components for BAM's divisions, I get common equity of $22B. I've tried to put in explanations of the various gaps and inconsistencies but I need the annual report and a little more time to finish it all.

 

*I don't know why but I can't replicate the value per share exactly even though I do have the exact same common equity. I am using 658MM common shares, as do most of BAM's Q4 info so this is a bit confusing. I get $43.54. BAM gets $44.93

Brookfield_Asset_Management.xls

[Hielko]

Check page 11 in this document: http://www.brookfield.com/_Global/42/img/content/File/Investor%20Relations/Supplemental%20Information/2012/Supplemental%20Information%202012_F1.pdf

 

Shows how they calculated the $44.93 number

[thepupil]

yep, that's what I was using but 28,649/658 = 43.54 so either they are using a different (lower) share count or something is off. That's why I'm confused by that.

 

I think a lot of the difference is in the property division. Hopefully BPY will unlock the value that BAM has in its non GGP, non BPO holdings such as 22% of Canary Wharf (a huge office development in London), 35% of Brazil Retail Fund (one of the bigger owners of nice shopping malls in Brazil) etc.

 

 

 

[Hielko]

The probably used average shares outstanding during the period?

[peterism]

Shares outstanding at 31.12.2012 - 619,6

Unexercised options - 38,4

Total diluted shares at end of year - 658

[mranski]

Appx 7% of total shares as outstanding options?

If that is correct, the share options seem a bit excessive for my liking.

I like to see it under 5% for large caps, closer to 1 or 2 is good.

 

 

[Yours Truly]

Has anyone read the BPY spin-off 20F/A on it's site?

http://www.brookfield.com/content/investor_presentations/brookfield_property_partners-33952.html

 

Currently only on 50 pages of 350 pages.. anyone know how they come out with the value of $25 per share which targets a 4% yield ($1 a year)..

 

The price on TSE: BPY.UN is currently $22.50 and NYSE:BPY is $22

 

I still have time until the spin-off occurs on Monday to decide

 

But judging by past past BAM spin-offs such as Infrastructure and Pipeline, this should be a winner as well especially given that BAM will still control 92% of the voting rights and diversification of its Commercial RE properties

[Yours Truly]

OK, $25.00 represents the BV as of Dec. 31, 2012

 

Here's a great presentation from the folks at BAM regarding the new BPY spin-off

http://www.brookfield.com/_Global/42/img/content/File/Investor%20Relations/Presentations/2013/F_BPY_Corporate_Profile_April_9_2013.pdf

 

It shows a nice highlight of their successful track record on their corporate spin-offs

[giofranchi]

8:32 AM Brookfield Asset Management (BAM) receives regulatory approval to proceed with a plan to purchase more than 53M shares - about 10% of the public float. The maximum daily purchase allowed in Toronto will be about 195K shares, representing 25% of the average daily volume. The company bought more than 2M shares on the NYSE over the last year.

 

giofranchi

 

“As time goes on I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one’s risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One’s knowledge and experience is definitely limited and there are seldom more than two or three enterprises at any given time which I personally feel myself entitled to put full confidence.” - John Maynard Keynes

 

[WhoIsWarren]

8:32 AM Brookfield Asset Management (BAM) receives regulatory approval to proceed with a plan to purchase more than 53M shares - about 10% of the public float. The maximum daily purchase allowed in Toronto will be about 195K shares, representing 25% of the average daily volume. The company bought more than 2M shares on the NYSE over the last year.

 

giofranchi

 

giofranchi, this isn't really "news".

 

Here are some snippets from the Q4:12 earnings call (mid-Feb 2013):

 

Brian Lawson (CFO):

"The board also approved a normal course issuer bid that permits us to repurchase approximately 55 million shares and

Bruce will speak further on this in his remarks."

 

Today's "news" is that they have received regulatory approval from the Toronto Stock Exchange.

 

Other snippets from the earnings call were the following:

 

Bruce Flatt:

"In addition, as a result of this cash generation, we will also likely use portions of it to repurchase common shares in the

company. Brian just mentioned the renewal of our common share issuer bid which often we authorize, but don't use.

But depending on price and other opportunities, we may use a large portion of this 50 million plus share issuer bid over

the next year to repurchase common shares with this excess cash."

 

And in answer to a question:

"I guess, Michael, these are all capital allocation decisions and to answer this question, one that was asked earlier, our business is about capital allocation at the most senior corporate level and all we do is decide whether we should take money out of one thing and put it into another. There is no doubt our shares are we believe are a good investment compared to other things, some other things today. And as we harvest cash, one of the places we'll look to – is to pull in stock. I don't think we should specifically say whether we're going to be in the market buying at these levels are not, but it's very possible over the next year that as I said in my notes, that we'll use a portion or a significant portion of our allotments."

 

So I would be surprised if there wasn't a meaningful number of shares bought back over the next year.  But, as I say, this isn't "news".

 

Hope this helps.

 

P.S. Gio, were you at the Fairfax AGM?  I was there and was keeping an eye out for you to have a chat......alas!  So many people, so little time.....

 

 

[giofranchi]

8:32 AM Brookfield Asset Management (BAM) receives regulatory approval to proceed with a plan to purchase more than 53M shares - about 10% of the public float. The maximum daily purchase allowed in Toronto will be about 195K shares, representing 25% of the average daily volume. The company bought more than 2M shares on the NYSE over the last year.

 

giofranchi

 

giofranchi, this isn't really "news".

 

Here are some snippets from the Q4:12 earnings call (mid-Feb 2013):

 

Brian Lawson (CFO):

"The board also approved a normal course issuer bid that permits us to repurchase approximately 55 million shares and

Bruce will speak further on this in his remarks."

 

Today's "news" is that they have received regulatory approval from the Toronto Stock Exchange.

 

Other snippets from the earnings call were the following:

 

Bruce Flatt:

"In addition, as a result of this cash generation, we will also likely use portions of it to repurchase common shares in the

company. Brian just mentioned the renewable of our common share issuer bid which often we authorize, but don't use.

But depending on price and other opportunities, we may use a large portion of this 50 million plus share issuer bid over

the next year to repurchase common shares with this excess cash."

 

And in answer to a question:

"I guess, Michael, these are all capital allocation decisions and to answer this question, one that was asked earlier, our business is about capital allocation at the most senior corporate level and all we do is decide whether we should take money out of one thing and put it into another. There is no doubt our shares are we believe are a good investment compared to other things, some other things today. And as we harvest cash, one of the places we'll look to – is to pull in stock. I don't think we should specifically say whether we're going to be in the market buying at these levels are not, but it's very possible over the next year that as I said in my notes, that we'll use a portion or a significant portion of our allotments."

 

So I would be surprised if there wasn't a meaningful number of shares bought back over the next year.  But, as I say, this isn't "news".

 

Hope this helps.

 

P.S. Gio, were you at the Fairfax AGM?  I was there and was keeping an eye out for you to have a chat......alas!  So many people, so little time.....

 

Hi WhoIsWarren,

I never have the ambition to give you “news”… you are always one step ahead!!  ;D ;D

I haven’t read the conference call transcript yet (I think it is stacked under a thick pile of other documents… I am always late!!), and I didn’t know Mr. Flatt had talked about “50 million plus” shares buyback!

I think it is an important number, that speaks loud about what management thinks IV really is.

Thank you!

 

No, unfortunately I could not be there… I would have liked it very much, just to meet you and other very thoughtful investors I have come to know on this board… I will surely arrange things so that I get the chance next year!!  :)

 

Gio

 

[WhoIsWarren]

Hi WhoIsWarren,

I never have the ambition to give you “news”… you are always one step ahead!!  ;D ;D

Eh....flattery will get you everywhere, but I don't think so! In fact, when you originally posted the buyback "news" I got quite excited and thought the share price would react positively.  When this didn't happen, I thought some more and remembered the conference call share buyback discussion!

 

No, unfortunately I could not be there… I would have liked it very much, just to meet you and other very thoughtful investors I have come to know on this board… I will surely arrange things so that I get the chance next year!!  :)

Yes maybe next year -- I look forward to it already  :D

 

In the meantime, keep your posts coming.  You've got to be one of the most prolific contributors to the board!  From what I remember, you only joined the group a few months before me but have....emmm....well....made just a few more posts than me  :o :o

 

[giofranchi]

Q1 2013 Letter to shareholders

 

giofranchi

Q1-2013-BAM-Letter.pdf

[nnayyar]

Any thoughts on BPY spinoff? trading ~23, stated BV was $25 and projecting 4% yield. Previous poster had link to investor presentation with much higher (though mgmt projected!) value...