Brookfield Corp (TSX:BN) is a true giant among Canadian financial services companies, with a $119 billion market cap and even more value in the publicly traded portions of its subsidiary companies. All told, the Brookfield companies might be worth $150 billion or more!
The question investors have to ask now is whether Brookfield can sustain the growth that brought it here. Brookfield’s revenue has compounded at a rate of 16.8% per year over the last 10 years. It’s done a lot of growing, and not many companies can keep up such growth for long periods of time. With that being said, Brookfield’s Bruce Flatt and his top executives are all very talented people. If anyone can do it, it’s them. In this article, I will explore several recent developments that point to Brookfield’s future being even better than its recent past.
Record fundraising at Brookfield Asset Management
One reason to think that Brookfield has some more good years ahead of it is the fact that Brookfield Asset Management’s (TSX:BAM) recent earnings were quite good. BAM, which Brookfield owns 75% of, is a Canadian asset manager that has been doing some growing lately. In its most recent quarter, its fee-related earnings increased 14% and its net income increased 10%. Both pretty satisfying numbers. More importantly, the company’s fee-bearing capital increased by 23%, which points to the potential for more growth in the future. As the 75% owner of Brookfield Asset Management, Brookfield Corp will share in this future growth.
A massive deal for Brookfield Renewable
Another reason to think that Brookfield has some more good years ahead of it is because another of its subsidiaries scored a massive deal to provide Microsoft with 10.5 gigawatts of renewable power between 2026 and 2030.
In May, Brookfield Renewable Partners announced that it had struck the above-mentioned deal with Microsoft. The press release mentioned that there was potential to “increase the scope” of the deal. If that’s the case, then BEP.UN may possibly supply Microsoft with even more than 10.5 gigawatts in the end.
Profitability, growth, and valuation
Finally, Brookfield scores pretty well on profitability, growth, and valuation. The company’s distributable earnings margin is 4.2%, which is not extraordinarily high, but basically satisfactory. The return on equity, using distributable earnings instead of net income, is 9.9% – also pretty good. The company’s growth has also been good by some metrics in recent years; for example, earnings per share increased 503% in the last 12 months. The company’s stock is also cheap by some metrics, trading at:
- 14.5 times forward earnings.
- 0.9 times sales.
- 2.1 times book value.
- 14.6 times operating cash flow.
These are reasonably low multiples. Also, the “true” price-to-book ratio might be lower than the one I reported above. I got that ratio from an online data provider; however, there is a case to be made that Brookfield’s net asset value should be calculated differently than the standard one. Using that calculation method, the price-to-book ratio is closer to one than two; the company was trading at a substantial discount to net asset value last year, but has risen considerably in price since then.
On the whole, I feel quite comfortable owning Brookfield stock.
