Friday, October 12, 2012

Brookfield Asset Management

First of all, I will be going to the Money Show next week on Thursday, Friday and Saturday. I will not be posting on all of these days. If I post, it will be on what I learn at this show.

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.

Dividends are low (5 year median dividend yield at 1.89%, current yield is 1.73%) and growth is rather low at 5 and 10 year rates of 3.17% and 5.64% per year in CDN$ terms The growth is better in US$ terms at 5.92% and 10.44% over the past 5 and 10 years. However, if you are a Canadian, the growth in CDN$ terms is what you are really interested in. Still growth is not good in US$ terms considering that the dividend yield is lower than 2%.

Dividend Payout Ratios are good at 37.01% for earnings and 25.35% for cash for 5 year median values. The dividend yields are low, so low DPRs are expected. Earnings are expected to drop in 2012, so DPR for earnings in 2012 is expected to be around 48%.

Dividends were flat in 2010 and 2011. However, they were raised some 7.7% in US$ for 2012. The raise in CDN$ terms is lower at 5.7%. Canadian investors have not done as well as US investors as far as dividends are concerned. The other problems Canadians have in investing in this stock is that the dividends are paid in US$, so dividends will fluctuate constantly, depending on current exchange rate.

Total return for Canadian investors would be a negative return of 3.41% per year over the past 5 years and a positive 16.19% per year over the past 10 years. The dividend portions of the 5 and 10 year return would be 2.27% and 3.54% per year over these periods. The 5 year capital loss would be 5.68% per year. The 10 year capital gain would be 12.65%.

Total return for US investors would be a negative return of 0.77% per year over the past 5 years and a positive 21.76 per year over the past 10 years. The dividend portions of the 5 and 10 year return would be 2.30% and 3.91% per year over these periods. The 5 year capital loss would be 3.07% per year. The 10 year capital gain would be 17.84% per year.

The outstanding shares have increased marginally over the past 5 and 10 years at the rate of 1.26% per year and 0.78% per year, respectively. (The company has been buying back shares for cancellation.)

The company has had good revenue growth with growth over the past 5 and 10 years at 18.21% and 18.42% per year, respectively. Revenue per share growth is also good and over the past 5 and 10 years has increased by 16.75% and 17.50% per year, respectively. This growth is in US$. In CDN$ terms growth would be less.

The Earnings per Share growth is also good at 8.19% and 26.19% per year over the past 5 and 10 years. This growth is in US$ terms. In CDN$ terms growth is less. Also, EPS has fluctuated somewhat in the past and EPS is expected to be some 60% lower in 2012. The EPS over the past 12 months to June 2012 would seem to confirm this. So earnings growth is a lot less than it appears. The EPS for 2013 is expected to be better, but not that much better.

Cash Flow per Share has also fluctuated and it is down 8.54% per year over the past 5 years. However, it is up some 11.63% per year over the past 10 years. This growth is in US$ terms and growth in CDN$ terms is lower.

Book Value per Share growth looks very good. However, book value increased substantially because of the new accounting rules of IFRS. Book value growth is 23.88% and 19.20% per year over the past 5 and 10 years in US$ terms. It has grown at 20.65% and 14.02% per year over the past 5 and 10 years in CDN$ terms.

Return on Equity has been quite high over the past two years, with ROE for the financial year ending in December 2012 at 43.9%. The 5 year median is 14.2%. However, the ROE based on comprehensive income while also quite good also is a lot lower at 27.5% for the financial year ending in 2011. This implies that the earnings are not as good as they might appear. (ROE is the same in US$ and CDN$.)

Also, the EPS/CF Ratio is above 1.00 at 1.87 for the financial year of 2011. This ratio is also currently above 1.00 at 1.48. While this does not point to any particular problems, companies that have this ratio consistently over 1.00 tend to do worse than companies with this ratio under 1.00. (When this ratio is over 1.00, it says you should maybe caution.)

The current Liquidity Ratio is a bit low at 1.17. This ratio seems to fluctuate a lot, but is ok. The Debt Ratios have often been low, but the current ratio at 1.67 is good. The current Leverage and Debt/Equity Ratios are a bit high at 5.74 and 3.44, respectively, but have been higher.

It is not unusual today for companies reporting in US$ to do better in US$ than in CDN$ terms. Canadians have not done badly with this stock. However, it does have a low dividend yield with a rather lower dividend growth. So I think that Canadians could do better looking elsewhere.

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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