Brookfield Asset Management Inc. gets a chance this week to explain some of the finer points of its diverse operations and share details on how it plans to capitalize on the troubled economy.
The Toronto-based global asset manager hosts its annual investor day in New York on Tuesday. Senior executives will be talking up opportunities for growth.
BAM manages and operates assets of more than $150-billion (U.S.) around the world, focusing on property, renewable power, private equity and infrastructure. The company says today's tough economic times are providing it with enticing opportunities. But with the share price down 18 per cent this year, investors are clearly dubious.
What is beyond doubt is that ultra-low interest rates are favourable for BAM. Among other things, the low rates are prodding many institutional investors to seek higher returns through investments in alternative assets, including real estate, which plays into BAM's strengths. Last quarter, the company benefited from a $1.1-billion increase in the market value of its assets, primarily commercial real estate.
Thanks to its own solid balance sheet, the company is able to borrow cheaply, while smaller companies that might otherwise compete with BAM on the acquisition front lack the ability to access capital from cautious lenders.
Bruce Flatt, the chief executive officer, told investors last month that he sees "a vast number of opportunities to add assets" at a time when troubled, overindebted businesses are being forced to sell assets and reorganize operations.
BAM has been holding on to cash this year. At the end of its last quarter, the company reported $1.8-billion of cash and financial assets and $1.2-billion of untapped credit.
"It appears management continues to believe that certain European financial institutions and potentially industrials could become forced sellers," Neil Downey, an analyst with RBC Dominion Securities Inc., noted in a recent report. "It seems clear to us that BAM's goal is to deploy some financial capital and a lot of expertise and sweat equity, with the view that it can navigate through complicated restructurings and come out the other side as a long-term owner of high quality, long-duration assets, at a very attractive cost basis."
"Investors should view market stress and uncertainty as opportunities for Brookfield," says Murray Leith, vice-president and director of investment research at Odlum Brown Ltd.
Analysts are optimistic. Nine of the 10 following the company rate the shares a "buy." But investors need a clearer picture before they buy into the complicated business, whose holdings include office property from Manhattan to Melbourne, housing assets from B.C. to Brazil, infrastructure ranging from train tracks to port terminals, and private equity projects encompassing everything from a million hectares of timberland to corporate bridge financing.
"The price of a publicly traded security often does not equate to its value," Mr. Flatt wrote last month in his quarterly letter to shareholders. As a general rule, "[we]believe that stock markets undervalue great businesses. This is largely because stock markets have difficulty placing a finite current value on the future value of a strong franchise."
He said management calculates BAM's real value, or what the company calls "intrinsic value," at $39.31 a share, plus or minus $7.50 a share. These figures represent the "liquidation value" on the low end and the "business value" on the high end, and they include values not fully recognized by accounting rules.
For now, investors seem less than convinced. The shares traded at $28.15 (Canadian) when Mr. Flatt wrote the letter. They closed Friday at $27.40.