Brookfield Asset Management, Inc. (USA) (NYSE:BAM)

CAPS Rating: 4 out of 5

A global asset management company, with a primary focus on property, power and infrastructure assets.

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Member Avatar freecapital (73.77) Submitted: 8/24/2015 10:21:01 AM : Outperform Start Price: $31.33 BAM Score: -1.47

Manlobbi

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Member Avatar pagliacci100 (60.97) Submitted: 7/29/2015 3:57:25 PM : Outperform Start Price: $34.89 BAM Score: -2.62

They reinvest their profits the same way they place client money.

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Member Avatar kevday (98.60) Submitted: 6/21/2015 7:36:54 PM : Outperform Start Price: $35.65 BAM Score: -4.25

ht lou simpson

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Member Avatar JohnCLeven (54.75) Submitted: 5/17/2015 8:18:04 AM : Outperform Start Price: $36.23 BAM Score: -5.50

I've been semi-interested in BAM for a few years, but never pulled the trigger. Long-term CAPs outperform.

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Member Avatar Manlobbi (90.71) Submitted: 5/11/2015 9:45:54 AM : Outperform Start Price: $36.31 BAM Score: -5.92

Brookfield Asset Management (BAM) IV10/price summary:

BAM book value per share, 2005 to 2014
6.70 9.28 11.38 8.58 11.18 20.50 27.04 29.03 28.89 32.57
9 year average: Growth of 19% per year

BAM price to book, 2005 to 2014
3.3 3.5 3.1 1.8 2.0 1.6 1.0 1.3 1.3 1.5
9 year average: 2.04

Rate of change of IV (for example IV10/IV1):

Future expected growth is reduced from the recent 19% (excl. dividend)
to 13% (excl. dividend) per year. It should be noticed that Brookfield
stated even more conservative estimates in the past than it is stating
for the next decade, but exceed the target. Example from
2010 annual report: "Our primary financial objective is to
increase the intrinsic value of Brookfield on a per share
basis, at a rate in excess of 12% when measured over the long term".

Brookfield's analysis for investors leads to a target of 15%
IV growth and is explained in detail at:
https://www.brookfield.com/_Global/42/img/content/File/Investor%20Relations/Annual%20Reports/2010/BAM%20Annual%20Report%202010.pdf

My lesser 13% rate of IV change is comprised by adding up separate the
independent factors: (1) the largest gain coming from income from assets
accumulating into the book which are leveraged and paying a higher non-leveraged
yield than the 10-year fixed interest loans - of course this
accumulated equity is used to purchase new assets, (2) increase
in the value of assets with inflation, (3) additional capital
gains beyond inflation by selling overpriced assets and
buying cheaper higher yielding assets, (4) fee income from
private investors which also accumulates into the book,
(5) growth of fee income by creation of new funds and expansion
of existing funds by marketing to new investors. These private
investors have committed to hold the assets for prolonged periods,
rather like bond contracts, so the long-term fee income is extremely
reliable and should consequently capitalised at a multiple
of 15, (6) additional fair value increases (or in the case of
selling, larger capital gains) by improving operations. When the
various elements are added together the IV increase becomes
rather easy to reach and will be more likely to be exceeded
than falling short and I will monitor risks for having the books
written down (such as rising interest rates **).

Model of instantaneous IV:

BAM's book value uses fair value accounting, where a price to
book of 1.0x book should approximate liquidation value (the
cost of selling all assets without particularly favourable
deals and closing the business). As a going concern, though,
when thinking about IV, this fair value does not cater
for (1) investment fees that are not capitalised and added as
part of the book, nor (2) the high rate of change of book value per
share that should rationally indicate a premium to mitigate future
increases to book value per share, similarly as we value Markel
at 1.7x book for example. It is obvious that IV should
be well above book in the case of Brookfield but the "correct"
value is, as with other firms, a less practical concept than
an estimate of the value that would most commonly be intersected
through a variety of future market conditions. We will conservatively
assume a lower price to book value ratio than what has
historically occurred the last 10 years (price to book of
2.04) given that we are also projecting a lower rate of
change of IV. Of course, the stock will trade in a large
range of price/book values over the next decade and so
we want to choose a value that can be thought of as the
value that is intersected most frequently and rather reliably
and will use 1.8 x book value. Brookfield's approach of marking
book value at fair value using DCF is something I have been
ideologically against however with clearer thinking it is actually
sensible given that there is no price discovery and some
rational solution has to be offered in place. *

IV10/price:

Book value per share today: $31.42
Book value per share growth: 13% per year (rate of change of book value is aligned with rate of change of IV).
Book value per share year 10: $106
Average annual dividend over 10 years: $0.80 per share
10 year accumulated dividends: $12.80 per share (multiplied by 1.6 to cater for external investment return of dividends)
IV10: $204 per share (1.8 x book + accumulated dividends)
Price today: $55
IV10/price: 3.7

* With Berkshire's investment portfolio, by contrast, we have
price discovery owing to the public trading and they mark the
assets at market value rather than fair value, whether the
market is overvaluing or undervaluing the assets. The book value
marked to fair value as with Brookfield, rather than marked to
market, is not prone to be overinflated during market bubbles.
Berkshire's present book value, if "normalized over time", would
be stated as lower than the reported book value given equity valuations
are higher than the historical average and Brookfield does
not suffer this distortion. Nevertheless I prefer the empiricism of
marketing to market, but trust the integrity of Brookfield doing
the best it can without price discovery to bring book value closer
to liquidation value, but will continue to monitor their method
of reporting book. Consistency of the measurement is probably
more important than the absolute figure, so that the rate of
change of book value per share can be tracked meaningfully
over time.

** The common question of interest rates is taken
care of by sticking to 10 year debt contracts, so we are not forced
to start new contracts at a high rate, but even if we were using
short-term rate, the rate would have to rise by 2.5% just to move
from the short-term rate to the 10 year rate that we already have.
So if after 10 years the interest rates are 2.5% higher and we
move to shorter term rates, there would be no economic impact
on the business. Brookfield's debt to equity is 3.98
(about $200b assets but $100b is private funds so about $100b
owned, but $25b equity, so debt to equity is 4) and a large
increase in rates such as 5% would have an economic impact, however
these massive interest rate increases would be expected to be
associated with inflation where both the asset income rises
and the rent rises so they partly cancel each other out. Bruce
Flatt has expressed that moderate interest rate increases would
be a net positive for intrinsic value per share. In my model
massive interest rate increases, if not deemed a temporary event,
could anyway be accepted profitably by Brookfield by reducing the
asset base and reducing debt at unfavourable asset sales prices, until
the super high interest rate is again overwhelmed by the asset income,
leading to a one-off hit to the books (from capital losses from the
particular assets sold) but not catastrophic and the firm would
resume its IV growth path at slightly lower rate with the smaller
asset base. Of course, interest rates would not rise suddenly in a
few days and this would completely destroy a huge number of businesses
and be pointless, and would rise gradually and Brookfield would,
contrary to this story, prepare in advance which it has proven to
be very good at doing in observing the global economic environment.

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Member Avatar chsmrmt (< 20) Submitted: 4/14/2015 12:34:31 AM : Outperform Start Price: $38.00 BAM Score: -10.91

Thank you Global Gains for leading me to this stock. It is in my son's Coverdell account and is one of my best and most steady performers of the last 5 years. I wish another TMF service would pick it up so I could have some ongoing coverage.

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Member Avatar ehlert41 (< 20) Submitted: 1/13/2015 10:50:51 AM : Outperform Start Price: $34.76 BAM Score: -4.98

best stock in canada

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Member Avatar TMFBuck (89.38) Submitted: 10/7/2014 10:42:33 AM : Outperform Start Price: $29.31 BAM Score: +6.76

Well run business with a history of creating value. Look at the recent purchase of the Revel casino. $110 million for something that was completed just a few years ago at a cost of $2.4 billion.

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Member Avatar eksummers620 (40.34) Submitted: 8/29/2014 2:09:46 AM : Underperform Start Price: $31.16 BAM Score: -2.99

BAM has had a great market run-up. I still think this is a great company but it's current valuation may be a bit on the high side. Investors should approach and invest with caution.

While the market is entering overvalued territory, BAM is running well ahead of the market and investors should be careful.

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Member Avatar ValueSwap (< 20) Submitted: 8/28/2014 4:46:38 PM : Outperform Start Price: $31.16 BAM Score: +2.99

Assets under management continue to increase, they invested capital in China, India and Blizard where captial is scare

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Member Avatar chk999 (99.97) Submitted: 8/20/2014 10:10:00 AM : Outperform Start Price: $31.06 BAM Score: +2.30

World class capital allocators.

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Member Avatar WHOVPLLC (41.17) Submitted: 2/21/2014 10:32:11 AM : Outperform Start Price: $26.18 BAM Score: +13.59

This company successfully invests in ports, terminals, and other infrastructure assets. This fulfills a precessing and functional need in the modern economy. BAM is a Long-term BUY.

WHOVPLLC

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Member Avatar 2win (< 20) Submitted: 1/27/2014 9:50:23 AM : Outperform Start Price: $24.40 BAM Score: +19.06

http://www.bloomberg.com/quote/BISA3:BZ disparando

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Member Avatar CarlosDK (20.57) Submitted: 9/26/2013 6:34:42 AM : Underperform Start Price: $23.91 BAM Score: -15.35

bearsih engulfing

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Member Avatar kbelboe2 (35.15) Submitted: 8/29/2013 10:31:09 AM : Outperform Start Price: $22.15 BAM Score: +22.27

Canadian value conglomerate; good long term stock.

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Member Avatar tallenuk (< 20) Submitted: 5/23/2012 5:32:29 AM : Underperform Start Price: $19.36 BAM Score: -12.74

Get out of everything, the next 2008 is coming.

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Member Avatar lkingforfreedom (< 20) Submitted: 12/4/2011 1:58:22 AM : Outperform Start Price: $17.30 BAM Score: +26.59

equity of 20.1 bln mcap of 17bln at $27. Intrinsic value of $38. insiders own 17%. Fairholme, 3rd Ave and Davis own. 14% annualized bv/share CAGR

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Member Avatar ahs001 (41.37) Submitted: 10/10/2011 12:42:22 AM : Outperform Start Price: $16.52 BAM Score: +23.12

Well run

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Member Avatar wsucougs (57.93) Submitted: 10/3/2011 5:14:09 PM : Outperform Start Price: $16.05 BAM Score: +14.62

Diverse sources of income. Owns long term income assets that should be good in good times and steady in bad times.

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Member Avatar shthpns8 (< 20) Submitted: 9/22/2011 10:22:10 AM : Outperform Start Price: $16.05 BAM Score: +22.61

A mini-Berkshire. 'Nough said.

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