Friday, November 8, 2013

Brookfield Asset Management

I am putting up on my other blog my notes from the World Money Show 2013 in Toronto. I will put up these notes as I transcribe them here.

I do not own this stock Brookfield Asset Management (TSX-BAM.B, NYSE-BAM), but I used to a long time ago. I bought this stock as Hees International in 1987 and more in 1988, 1989 and 1990. At first dividends were semi-annual and there was some good dividend increases.

There was a much lower dividend increase in 1991. Between 1991 and when I sold in 1999 there was no dividend increases. The stock was going nowhere, so I sold. I made a total return of 3.69% per year. My capital loss was 1.18% per year. My dividend was 4.87% per year.

Dividends are paid in US currency. What this means for Canadian investors are that the dividends will vary and you can never be exactly sure how much you are going to receive. A lot of companies have had problems after 2008 and this company is no different. This shows up in dividend increases.

Over the past 5 and 10 years, dividends have increased by 3.38% and 6.07% per year in CDN$. Over the past 5 and 10 years dividends have increased by 3.19% and 11.06% per year in US$. The current dividend is 1.5% and the increases are quite low with a quite low dividend. This means that even at 11% increase, after 10 years you would only be earning some 4.3% on your original purchase price if the stock was purchased today. The last dividend increase in 2013 was for 7.7%.

Both earnings and cash flow do fluctuate, but the Dividend Payout Ratio is quite reasonable at a 5year median of 28% for earnings and 23% for cash flows. The one for the financial year of 2012 is similar. For the financial year ending in 2013 it appears higher because of the special dividend of units of a newly created company named Brookfield Property Partners L.P.

Shareholders in Canada have had a total return to the end of 2012 over the past 5 and 10 years of 2.93% and 17.74% per year. The shares have increased by almost 14% year to date. If you look at total return to date, the 5 and 10 years return would be at 19.29% and 16.92% per year with 17.10% and 13.41% per year from capital gains and 2.19% and 3.52% per year from dividends. The big change between the 5 years to 2012 and 5 years to date is because the shares when down some 36% in 2008.

If you look at 5 year running averages, the Revenue and Cash Flows have been growing nicely, but not so much the earnings. The 5 and 10 year growth in Revenue is 20% and 23% per year using 5 year running averages in US$. The 5 and 10 year growth in Cash Flow is 9% and 18% per year using 5 year running averages in US$. The 5 and 10 year growth in EPS is 4% and 17% per year using 5 year running averages in US$.

Debt Ratios are fine, but the Return on Equity is low with the 5 year median at 6.2% and the ROE for 2012 also at 6.2%. However, the ROE on Comprehensive Income is higher, but still not very high, at 8.7% for 2012.

The analysts' recommendations are Strong Buy, Buy and Hold. The consensus recommendation would be a Buy. The 12 month consensus stock price is $40.80. That gives a total return of 0%, with a capital loss of 1.5% and a dividend of 1.5%.

The 5 year low, median and high median Price/Earnings Ratios are 12.54, 16.46 and 18.23. The current P/E Ratio is 18.98 on a 2013 earnings estimate of $2.18 CDN$ and Stock price of $41.42 CDN$. I get a Graham price of $37.29. The 10 year low, median and high median P/GP Ratios are 0.83, 1.06 and 1.35. The current P/GP Ratio is 1.11. The P/E Ratio says that the price is a bit high and the P/GP Ratio says that the price is reasonable.

The 10 year Price/Book Value per Share Ratio is 1.89 and the current P/B Ratio is 77% of this at 1.46. The 5 year median dividend yield is 1.89% and the current dividend yield is 1.51 a value some 20% lower. The P/B Ratio says the price is cheap and the dividend yield says that the price is high. I go with the dividend yield and say high.

Zacks says that this company is nearing a bottom and has rising estimates so it is a buy. I think it has had some good growth, but the price is rather high. See my spreadsheet at bam.htm.

This Canadian Asset Managing company invests in and operates a variety of assets on its own behalf as well as co-investors. It is focused on property, power and infrastructure assets. It operates in Canada, US and internationally. The subsidiaries of the Company are Brookfield Homes Corporation, Brookfield Properties Corporation, BPO Properties Limited, Multiplex, Brookfield Power Inc., Great Lakes Hydro Income Fund, Brascan Brasil, S.A., Brascan Residential Properties, S.A. and Brookfield Investments Corporation. Partners Ltd owns 17%. Its web site is here Brookfield.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

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