Brookfield Cash Flows Freely - Desjardins
by: FP Trading Desk November 21, 2008
Brookfield Asset Management Inc. (BAM) reported third quarter results earlier this month, but analysts have been poring over the company’s more detailed quarterly report, released earlier this week. Michael Goldberg at Desjardins Securities was particularly interested in determining funds from operations (FFO) excluding gains and other unpredictable factors, and segmented FFO excluding those items.
He noted that total reported FFO per share for the third quarter was US58¢, up from US51¢ in same quarter of the previous year. Excluding net gains and unpredictable items, Mr. Goldberg determined Brookfield’s adjusted FFO available for common stockholders at US50¢ per share, up from US45¢ a year earlier. Adjusted FFO is funds from operations after the payment of all interest and expenses. Mr. Goldberg says “it is not quite the equivalent of free cash flow, but a good indicator that Brookfield is a prolific generator of cash.”
Mr. Goldberg’s takeaway from his number crunching is that Brookfield’s cash flows “remain solid,” while it’s financial position “is strong an it is cash rich at a time when others face forced liquidations and cash is king.”
He adds “this should be the time for Brookfield to thrive,” even though the credit crunch and market crash has cut Brookfield’s stock price in half. It now trades in the C$15 range on the TSX and at about US$12 on the New York exchange.
While the company's prospects remain solid, Mr. Goldberg has reduced his price target on Brookfield shares to US$24 from US$39, given the current market.
“We believe that Brookfield shares represent deep value at current levels,” he said, noting it has lost US$9-billion in market capitalization since Lehman Brothers went bankrupt Sept.12. "We have a hard time believing that Brookfield is worth US$9-billion less than it was on Sept.12."
