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- Manlobbi
Stocks A to Z / Stocks B / Brookfield Corporation (BN) ❤
No. of Recommendations: 17
BAM's quote has lately been rising faster than BN, and already BN was the more discounted of the two, and has recently become even more so.
The market cap of BAM appears to be $14.4 billion today based on the latest quote of BN of $35.06.*
BN's market cap is $57.5, which includes the other 75% of BAM (3 * 14.4 = $43 billion).
This prices the remainder of BN (which includes all their directly held commercial property, and their ownership of BBU, BE, BIP as the big three) at $57.5 - 3 * $14.4 = $14.3 billion. Call it the "Trading value of BN without BAM".
The trading value of BN without BAM should be closer to the IFRS value of $34 billion. The quote of BAM is treating the value of "BN without BAM" as $34 billion, which is a 58% discount to IFRS.
I do not see any reason, other than short-term speculation (or the dividend income being necessary) to hold BAM now, given that you can own the same BAM company (plus the extra business) through the parent BN at a significant discount.
Another way to look at the arbitrage opportunity is to consider the converse - what discount on BAM shares are you getting by owning BAM through BN? For the calculation you could assuming the value of BN without BAM is worth IFRS. If that was so, then you are getting the 25% ownership of BAM for (57B - 34B) / 3 = $7.6 billion via BN, instead of paying $14.4 billion when purchasing via BAM. (NB: The (57B - 34B) above represents the 75% ownership of BN, so I have divided by 3 to represent the 25% ownership).
In both cases, it seems to make sense to sell BAM today and purchase BN shares. I have not done this myself quite yet.
- Manlobbi
* I believe this $14.4 billion market cap is the value of the 25% publicly available float, but please correct me otherwise. The earnings call was yesterday and they are reporting BAM's financials for BAM as a whole (100% ownership) rather than the 25% ownership that the BAM public float represents.
No. of Recommendations: 8
I do not see any reason, other than short-term speculation (or the dividend income being necessary) to hold BAM now, given that you can own the same BAM company (plus the extra business) through the parent BN at a significant discount.A reason could be that owing BN may not necessarily translate to 75% ownership in BAM.
As at December 28, 2022, Brookfield Asset Management's 412,201,980 total issued and outstanding Class A Shares represented a 25% interest in the approximately 1.65 billion shares of the asset management business, with the remaining 75% held by Brookfield Corporation. Of this 412,201,980 issued and outstanding Class A Shares 317,850,364 Class A Shares represented the public float.https://bam.brookfield.com/press-releases/brookfie...Above doesn't say BN owns 75% of BAM.
It says BN owns 75% of the asset management business and BAM shares
represent an ownership stake in the remaining 25% of the asset management business. It sounds like the actual asset management business is an unlisted entity with 1.65 billion shares.
This may not make a difference as things currently stand, but could in the future if BAM uses its shares for acquisitions. This will result in current BAM share holders diluting their stake in the asset management business to less than 25% but also gaining ownership in the acquired company. BN shareholders will continue to own 75% of the asset management business but will not gain ownership in any BAM acquisitions. The paths may significantly diverge depending on the number of acquisitions. They mentioned non organic growth as a possibility in last year's investor day presentation.
No. of Recommendations: 13
Press release quote: "As at December 28, 2022, Brookfield Asset Management's 412,201,980 total issued and outstanding Class A Shares represented a 25% interest in the approximately 1.65 billion shares of the asset management business, with the remaining 75% held by Brookfield Corporation. Of this 412,201,980 issued and outstanding Class A Shares 317,850,364 Class A Shares represented the public float."
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It says BN owns 75% of the asset management business and BAM shares represent an ownership stake in the remaining 25% of the asset management business. It sounds like the actual asset management business is an unlisted entity with 1.65 billion shares. This may not make a difference as things currently stand, but could in the future if BAM uses its shares for acquisitions. This will result in current BAM share holders diluting their stake in the asset management business to less than 25% but also gaining ownership in the acquired company. BN shareholders will continue to own 75% of the asset management business but will not gain ownership in any BAM acquisitions. The paths may significantly diverge depending on the number of acquisitions. They mentioned non organic growth as a possibility in last year's investor day presentation.
BAM reported their financials in their first earnings call in the context of the entire asset management company (4 x the value of BAM, in other words the 1 x of BAM that is the public float, plus the 3 x of BAM that is owned privately by BN).
When BAM makes acquisitions by selling its stock (which is in practice the only way for large purchases, as it plans to pay out 90% of its cashflow as a dividend), then I expect it will be done by the entire asset management firm, rather than just the public float part of BAM separately making the acquisition. The public float is 25% of the whole asset management firm, rather than a separate firm with its own financials. If this is right, as I expect, then the asset management firm dilution would be applied to both the public float of BAM and the privately owned shares of BAM by BN.
On a different topic, I think the idea to float BAM was excellent. It provides more capital allocation opportunities; if BAM trades very high, it can do acquisitions; if BAM trades very low - then BN can then purchase the shares back. But BN is more interested in purchasing shares of BN right now, and not BAM..
The main capital allocation point of interest (for me) from the recent BN earnings call was that BN is very aware that BN's quote is far too low right now; Flatt gave the impression, through the particular wording and also his intonation, that he is very much ready to put forward an public offer for BN to purchase back a lot of its shares at a higher price than the present quote. They presented this idea with BPY in 2020, and went ahead and did it.
Both as a high IV10/price opportunity (the long-term value of BN relative to the present quote), and quite separately for other types of investors with a shorter speculative stance (because of a possible pending private purchase by BN), the parent BN appears as a really great investment opportunity right now at $36 per share. Enjoying owning them today.
- Manlobbi
No. of Recommendations: 6
Both as a high IV10/price opportunity (the long-term value of BN relative to the present quote), and quite separately for other types of investors with a shorter speculative stance (because of a possible pending private purchase by BN), the parent BN appears as a really great investment opportunity right now at $36 per share. Enjoying owning them today.
Can you please post an updated IV calculation for BN and BAM, with comparison to other attractive candidates for your investments? You occasionally posted your comparisons on the TMF Manlobbi Descent board, and I am hoping you will do so on Shrewdom as well.
Thanks.
No. of Recommendations: 13
For those tracking a good time to sell their BAM shares to purchase BN, the BAM/BN quote ratio has continued to climb since my initial post in this thread.
Subtracting the market cap of BN's 75% ownership of BAM from BN now gives:
$53B - 3 x 14.0B = $11.3B
This $11.3B for the assets has grown to a 68% discount to the $35.7 billion using IFRS values. If the quote ratio continues to rise, you might soon be able to own BAM though BN and have all the assets included in for free.
Price inefficiency can reach more dramatic proportions of course, but if the BN quote remains at this level or lower, expect an issuer bid by BN (offer to shareholders to sell stock to BN at a higher price). They would only do this if getting a serious bargain so the quote might need to fall a little further, yet any such issuer bid would almost certainly be higher than the present quote of $33.
- Manlobbi
