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Buyback Wednesdays – Brookfield Asset Management to Buyback 31.7 Million Shares

  • January 11, 2023

Buyback announcements have slowed significantly since the start of the year with only 8 companies announcing share repurchases last week. As we get into earnings season in the next few weeks, buyback announcements will start to pick back up again.

The most significant buyback of the week in dollars terms was by a healthcare technology and devices company, Agilent Technologies, Inc. (A).  The company provides application-focused solutions to the life sciences, diagnostics, and applied chemical markets worldwide. Agilent announced a $2 billion share buyback representing around 5% of its market cap at announcement. The market has already started responding to the announcement and shares are up  5.3% since the announcement yesterday.

One of the companies from our top 5 list that stood out was Brookfield Asset Management Ltd. (BAM). On January 9, 2023, Brookfield received TSX approval to commence the repurchase of 31.7 million shares, representing around 8% of its market cap at announcement.

Brookfield Asset Management (BAM) is a new spin-off from Brookfield Corp. (BN), a company that is more than a century old. On December 9, 2022, BN completed the 25% spin-off of BAM. The spin-off was designed to benefit investors in both companies. For every four shares BN investors own, they get one share of BAM, which is now 75% owned by BN.

To make things a little confusing, the parent BN used to be called Brookfield Asset Management and changed its name to Brookfield Corp. (BN) after spinning off its asset management business as the new “BAM”. The spin-off is an asset light business and the parent BN will be investing its money in many of new BAM’s funds. Considering how young the new BAM is, most of our discussion here is related to the parent company BN.

Brookfield is a Canadian multinational company and is one of the world’s largest alternative investment management companies, with over US $750 billion of assets under management. This makes it the second largest alternative asset manager after the global leader Blackstone (BX), which has $951 billion in AUM.

Brookfield believes it will grow its AUM to $1 trillion within five years. Brookfield focuses on the renewable power, infrastructure, private equity, real estate, and credit sectors. The company also provides solutions to help governments and businesses achieve their decarbonization goals.

                                                                                                                                Source: Brookfield – Investor Presentation

Strategic Partnerships

Brookfield entered into a number of strategic partnerships in order to deploy a significant amount of capital alongside its partners. Brookfield signed an agreement with Intel Corporation (INTC) to jointly fund the construction of a semiconductor facility in Arizona, with the company funding $15 billion through its infrastructure business. It also partnered with Deutsche Telekom to acquire part of half of a 51% interest in their $17.5 billion tower business.

Strong Profitability & Cheap Valuation

The company looks highly profitable with gross profit margin of around 80% and net income margin of nearly 60%. This is higher than peers like The Carlyle Group Inc. (CG), Blackstone Inc. (BX) and KKR & Co. Inc. (KKR). Given BAM’s focus, the comparison may not be a true apples to apples comparison and private equity earnings can be lumpy from one year to another.

Brookfield’s return on equity of 22% is impressive. Brookfield beat consensus earnings estimates 67% of the time over the last 20 years. It missed 8% of the time and matches expectations 25% of the time. The company has delivered annualized returns of 19% over the last 20 years and expects to deliver similar returns over the next 20 years. Its main objective remains to deliver compound annual returns of 15%+ to shareholders over the long term.

Share Buyback:

Since the end of the second quarter, Brookfield bought back $136 million of shares. Over the last 12 months, its share buybacks totaled $626 million and combined with regular and special dividends, the company has returned over $1.5 billion of capital to its shareholders.

                                                                                                                      Source: Brookfield – Investor Presentation

Strong Q3 results:

Brookfield delivered another strong quarter with record level of investable capital of over $125 billion. The company reported over $700 of net income and $1.4 billion of distributable earnings. Operating FFO was $1.2 billion for the quarter, a 30% increase compared to the prior year period. The increase was largely driven by the continued growth in asset management, the benefit of same-store growth across its operating businesses, contributions from recent acquisitions and the substantial growth in the insurance solutions business.

As a result of all these initiatives, the company ended the quarter with $407 billion of fee-bearing capital, which was up almost 20% compared to the prior year. Fee-related earnings were $531 million in the quarter and $2.1 billion over the last 12 months, representing increases of 18% and 20% respectively over the prior period.

Bottom line:

Alternative managers like Brookfield have done very well in recent years but saw big declines in their stocks in 2022. This decline was driven by a combination of a turn in the business cycle which impacts private equity firms, higher interest rates that impacts their leveraged balance sheets and skepticism about their mark-to-market practices. The new BAM has underperformed the market since the spinoff a month ago and the stock is down by nearly 6%.

Welcome to edition 41 of Buyback Wednesdays, a weekly series that tracks the top stock buyback announcements during the prior week. The companies in the list below are the ones that announced the most significant buybacks as a percentage of their market caps. They are not the largest buybacks in absolute dollar terms. A word of caution. Some of these companies could be low-volume small-cap or micro-cap stocks with a market cap below $2 billion.

Top 5 Stock Buyback Announcements 

1. DatChat, Inc. (DATS): $0.57

On January 10, 2022, the Board of Directors of this communication software company approved a new share repurchase program authorizing the company to repurchase up to $2 million of its class A common stock equal to nearly 21% of its market cap at announcement.

Market Cap: $11.74MAvg. Daily Volume (30 days): 210,681Revenue (TTM): $46.74K
Net Income Margin (TTM): N/AROE (TTM): -77.74% Net Cash: $14.05M
P/E: N/AForward P/E: N/AEV/EBITDA (TTM): 0.21

2. Hurco Companies, Inc. (HURC): $27.13

On January 6, 2022, the Board of Directors of this industrial technology company approved an additional share repurchase program authorizing the company to repurchase up to $25 million of its class A common stock, equal to around 14% of its market cap at announcement.

Market Cap: $178.70MAvg. Daily Volume (30 days): 11,478Revenue (TTM): $250.81M
Net Income Margin (TTM): 3.28%ROE (TTM): 3.57% Net Cash: $55.14M
P/E: 21.79Forward P/E: N/AEV/EBITDA (TTM): 9.39

3. Collegium Pharmaceutical, Inc. (COLL): $28.45

On January 4, 2022, the Board of Directors of this specialty pharmaceutical company approved a new share repurchase program authorizing the company to repurchase up to $100 million of its class A common stock equal to nearly 13% of its market cap at announcement.

Market Cap: $955.12MAvg. Daily Volume (30 days): 424,414Revenue (TTM): $361.68M
Net Income Margin (TTM): -11.84%ROE (TTM): -19.11% Net Debt: $597.97M
P/E: N/AForward P/E: 4.92EV/EBITDA (TTM): 9.53

4. TD SYNNEX Corporation (SNX): $104.94

On January 10, 2022, the Board of Directors of this business process services provider approved a new share repurchase program authorizing the company to repurchase up to 1 billion additional shares of its class A common stock, representing around 10% of its market cap at announcement.

Market Cap: $9.93BAvg. Daily Volume (30 days): 226,131Revenue (TTM): $61.71B
Net Income Margin (TTM): 0.89%ROE (TTM): 10.87% Net Debt: $3.78B
P/E: 18.25Forward P/E: 7.92EV/EBITDA (TTM): 7.73

5.  Brookfield Asset Management Ltd. (BAM): $30.21

On January 9, 2022, the Board of Directors of this alternative asset management service provider approved a new share repurchase program authorizing the company to repurchase up to 31.7 million shares of its class A common stock equal to nearly 8% of its market cap at announcement.

Market Cap: $12.47BAvg. Daily Volume (30 days): 2,395,876Revenue (TTM): 3.39B
Net Income Margin (TTM):59.71%%ROE (TTM): 21.52% Net Debt: $2.76B
P/E: N/AForward P/E: N/AEV/EBITDA(TTM): 9.58

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