Brookfield worth 40% more than price: CEO
Brookfield Asset Management Inc. ended 2020 with a record quarter and us$602 billion in assets under management, but the head of the alternative asset manager said he believes its shares are undervalued.
bruce Flatt, brookfield chief executive, said in a letter to shareholders Thursday that he believes the true value of the company is closer to us$57 a share, or roughly 40-per-cent more than its closing price of us$41.02 on Wednesday.
“Price is a function of supply and demand at any point in time, which is often influenced by the news of the day, short-term results, and the investor view of macro events that often have nothing to do with the company,” Flatt said in the letter. “This has always been true, and is even more so today with the emergence of etfs, indexing, social media, the 24-hour news cycle and all the information bombarding investors.”
2020 is a case in point. While brookfield’s investors may have only seen a total shareholder return of roughly eight per cent last year, the value of the company — taking into consideration future cash flows, growth assumptions and reasonable interest rates — actually rose 17 per cent. He said if brookfield were a private company, investors would have been thrilled by the increase in value.
“The movement of price often distracts investors from focusing on the value of a business. We encourage you to focus on value and try to not be distracted by price,” he said.
That said, the dislocation between the price ascribed to a stock and its underlying value does create opportunities. brookfield is currently pursuing two hostile bids, including trying to take to its own real estate arm, brookfield Property Partners, private.
In January, brookfield offered to acquire the rest of brookfield Property it didn’t already own for roughly us$5.9 billion. brookfield Property’s board is currently evaluating the offer.
“Property securities show no signs of trading near their intrinsic value,” Flatt said Thursday.
“This is simply a classic example of assets not being what public market investors currently wish to invest into.”
To be sure, investors have plenty to be concerned about. brookfield Property Partners posted a us$2-billion loss last year as the coronavirus outbreak kept many offices and malls closed for most of the year. Flatt said taking the portfolio private would give brookfield the flexibility to unlock its true value by redeveloping, selling, and building new assets over the long term.
On Wednesday, brookfield’s infrastructure arm made a $7.1-billion hostile bid for the rest of Canada’s Inter Pipeline Ltd. that it doesn’t already own.