Strategy: Aventine Canadian Equity (“ACE”) Fund: 4.3% weight
BAM recently announced that it was going to de-consolidate its operations to spin-off its Asset Management division and unlock value. The new BAM will pay 90% of distributable earnings as a dividend to its shareholders and management expects the dividend to grow at approximately 15-20% per year. For every 4 shares of BAM currently held, investors will receive 1 share of new BAM and retain their shares in the new holding company, Brookfield Capital Corp (BN-US). The new Brookfield Capital will hold:
- 75% of BAM (Brookfield Asset Management)
- 27% of BIP (Brookfield Infrastructure Partners)
- 48% of BEP (Brookfield Renewable Partners)
- 65% of BBU (Brookfield Business Partners)
- 100% of BPG (Brookfield Property Group) **
**For the purpose of this analysis, and for conservatism, we are ignoring all of the Brookfield Asset Management carried interest and the Insurance Assets
** In our valuation we apply a 20% discount to the purchase of price of BPG
As such, Brookfield Capital Corp will have $392 Billion of fee-paying assets and a significant tilt towards real assets with Real Estate, Infrastructure and Renewable Energy comprising approximately 55% of AUM.
The transaction could unlock significant value for BAM shareholders, as the new BAM would warrant one of the highest valuation ratios in the industry. One of the most important factors in deciding an asset management company’s multiple, is related to their payout ratio. With a 90% payout ratio, we believe BAM warrants a Distributable Earnings (DE) multiple between 15x and 20x.
Brookfield Asset Management has a long history of operating in every type of market cycle and has maintained its dominant position its industry. It has nearly an endless source of capital through both the public and private markets and has a tremendous track record of growing NAV as well as fee generating assets. We believe that the ACE Fund will be handsomely rewarded through price appreciation and dividends from its holding in Brookfield Asset Management Stock, and the subsequently de-consolidated group of Brookfield stocks.
We believe that the spin-off will be a catalyst for the shares and should occur before the end of 2022.
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This communication is intended to provide you with information about the current thinking, views, and outlooks of Aventine Investment Counsel. Aventine Investment Counsel is a registered trade name of Aventine Management Group Inc. a securities registrant in multiple jurisdictions across Canada. This letter does not constitute an offer or solicitation to anyone in any jurisdiction in which such an offer or solicitation is not authorized, or to any person to whom it is unlawful to make such an offer or solicitation. All investors should fully understand their risk tolerances and the suitability of any proposed investments prior to making any commitments to invest their capital.
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