Pedestrians and office workers walk past the Bay St. entrance to Brookfield Place in Toronto’s Financial District on July 12, 2022.Fred Lum/the Globe and Mail
Brookfield Corp. BN-T plans to carry on buying back shares and is eyeing potential acquisitions to expand its business as it battles to boost a share price that it believes lags the company’s true value by a wide margin.
Chief executive officer Brue Flatt told investors in a letter published Thursday that he believes Brookfield’s net asset value per share – a measure of assets minus liabilities – is “vastly higher than our share price.” The factors weighing on Brookfield shares include “general market malaise” as high inflation and interest rates push some economies into recession, and a short-term overhang from the recent spin-off of its asset management arm.
The company is betting that recessionary pressures, though significant in the near term, are likely to ease over the coming quarters. Brookfield has about US$125-billion of capital available to invest, and “we are now investing our resources with an eye on a recovery later this year or in 2024,” Mr. Flatt said in the letter.
After Brookfield Asset Management Ltd. reported solid financial results on Wednesday and gave a bullish outlook for potential fundraising in its first quarterly report as a standalone entity, some of the short-term pressure on shares in the parent company Brookfield Corp. “has started to clear,” Mr. Flatt said.
To help close the remaining gap to the company’s perceived value, however, “we expect to continue to use our cash resources to repurchase shares in the market,” he said. “If the discount persists, we will also consider other options, including a tender offer.”
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Brookfield’s share price was nearly unchanged on Thursday, rising one cent to $49.43 on the Toronto Stock Exchange.
In 2022, Brookfield said it returned about US$15-billion of capital to shareholders, including US$686-million by buying back shares in the open market.
Fourth-quarter profit was US$44-million, compared with US$3.46-billion a year earlier, in a period when the company had higher valuation and gains from one-time sales of assets.
Funds from operations, a cash-like measure that is a key barometer of performance for Brookfield, totalled US$1.83-billion in the fourth quarter, up from US$1.73-billion in the same period last year. Full-year funds from operations, which include gains from dispositions and carried interest, were US$6.3-billion.
Though some of Brookfield’s capital will be returned to shareholders, the company is also looking at the possibility of making investments outside its current business lines. That could include adjacent industries with the potential for rapid growth, moving deeper into insurance, or investing as a partner in external funds.
“With markets trading off and capital scarce, the odds favour us finding something interesting,” Mr. Flatt said.
It could also include what Brookfield labels “strategic acquisitions” that are too large for any one of its funds. As an example, Mr. Flatt said Brookfield “came very close to merging” an unspecified US$30-billion business into Brookfield Corp. 18 months ago.
If it were to do such a deal, it would likely be for “an industrial operating company or something like that,” he said on a conference call, and “something that is a step out from what we do today, not competitive with any of our funds. It could be done with one of our funds.”
Brookfield invested or committed US$81-billion of capital to new investments in 2022, and sold assets worth US$34-billion to realize gains of US$1.7-billion. Recent asset sales included student housing in Britain, telecommunications towers in New Zealand and electricity transmission lines in Brazil. Brookfield said a number of other sales are in progress.