Monday, October 15, 2012

Brookfield Asset Management 2

On my other blog I am today writing about why I think austerity measures do not work...continue...

I do not own this stock (TSX-BAM.A, NYSE-BAM). First of all, I should mention that this company has a long history of name changes. I bought it as Hees International between 1987 and 1990. I sold it as Edperbrascan in 1999. I made a return of 3.7% per year. I sold it as I felt the company was going nowhere. The company started to have problems in 1989 and I am glad a sold when I did.

When I look at insider trading I find no insider buying and $16.5M of insider selling. Not only are there options, but insiders have Deferred Share Units, Restricted Share Units, Restricted Shares-CDN and Restricted Shares-US.

I must admit that insiders do have a lot of shares, some in the $100M area. For example the CEO has stock worth $470M. However, since he has over 3M options and option like vehicles, it would not take that long to acquire his 14M shares via stock options. Insiders seem to have more shares than options, but there are millions and millions of options outstanding. A million shares are worth around $33M with today's share price.

It is only directors that have a more modest amount of options and option like vehicles. Director's options are worth more in line with $2M or less. There is also Subsidiary Executives who have shares and options and other options like vehicles for this company. Management is paying itself very well indeed.

There seems to be around 420 Institutions that hold some 62.51% of the outstanding shares of this company. Over the past 3 months they have increased their exposure marginally by 1.12%. This is for the Canadian market. On the US market, there is very low ownership, around 0.13% with 7 institutional holders and they have increased their exposure by 11%. However, overall increase by institutions is just 1.14%.

The 5 year low median and high median Price/Earnings ratios are 12.54, 20.21 and 27.89. The current P/E ratio is 28.47 based on a stock price of $33.15 CDN$ and 2012 earnings of 1.16 CDN$. This shows that the current stock price is relatively high.

I get a current Graham Price of $27.06 CDN$. The 10 year low, median and high median Price/Graham Price Ratios are 0.89, 1.28 and 1.59. The current P/GP Ratio based on $33.15CDN$ is 1.23. This ratio says that the current stock price is reasonable.

The 10 year median Price/Book Value is 1.89. The current P/B Ratio is 1.19 and this ratio is only some 62% of the 10 year median. This ratio suggests that the current stock price is low.

The 5 year median dividend yield is 1.89%. The current dividend yield is 1.73 a value that is 9% lower. This yield suggests that the stock price is on the high side, but it is not unreasonable. (The 10 year low dividend yield is 1.58%.)

The stock price tests results are rather mixed, but overall and giving preference to dividend yield and P/B Ratios, it would seem that the stock price is probably reasonable.

When I look at the analysts' recommendations, I find Strong Buy, Buy and Hold. The most recommendations are for Buy and the consensus recommendation is a Buy recommendation. The 12 months stock price is $38.57 CDN$. This suggests total returns of 18.08% with 1.73 from dividends and 16.35% from capital gains.

One analysts with a Buy recommendation suggested that institutional investments will go more strongly to real estate over the next 10 years because of the low yields on government bonds. The BAM management seems to be admired. Some analysts consider this company to be a REIT.

One analyst thought that if you wanted to buy this stock, you should get it at a better entry point (i.e. wait until it is relatively cheaper). Another thought the current yield was too low to be attractive. Another thought it was the biggest real estate name on the TSX, although it has a lot property in the US. Canaccord recently downgraded Brookfield Asset Management to a Hold in an article in the G&M. John Reese considers this stock one to beat the market, along with 9 others.

The management of this company certainly pays itself very well. The stock price seems to be currently reasonable on a number of different levels, but it is not cheap

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. See my spreadsheet at bam.htm.

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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