Subject: Re: Sell BAM, buy BN?
From a balance sheet perspective also, BN seems super cheap. If you attribute 40 billion of the 50 billion market cap to their 75% BAM ownership, you are getting everything else for just 10 billion. Everything else as in their direct investments into BAM funds, their stakes in BNRE, BEP, BIP and BBU. Plus BN will get 1/3 of carried interest from BAM in perpetuity even if they give up all ownership stake in BAM. All this for 10 billion seems ridiculously cheap.

In above alphabet soup from my previous post, I of course missed the biggest component Brookfield Property Group (BPG).

Speaking of alphabet soups, the complexity doesn't bother me too much as long as the numbers are not fraudulent. I don't think anyone here thinks that's the case. Otherwise, why are we even here. It's best to just move on and completely forget about Brookfield.

Assuming the raw numbers can be relied on, we don't have to pay too much attention to management cheerleading, abstract away the complexity, and simply look at the numbers and judge for ourselves how the business is doing.

Distributable Earnings (page 6 of BN supplemental information) clearly lays out the sources of BN earnings. Currently it's about 5 billion per year and this is the most important number to keep an eye on. Is it going up and at what rate? If it goes up to 6 billion per year, is BN really going to sit at current price levels? Of course, not.

Next, what does BN do with the earnings? This too is clearly laid out in Capital Allocation (page 8 of BN supplemental information). It spends tiny amounts on paying dividends and share repurchases. The bulk is reinvested in BAM. That's what the Direct Investments line item means. It is money BN has directly invested in flagship funds managed by BAM. BNRE is also getting reinvestment funds to help it grow. All this seems fine to me. Like at Berkshire, I want management to reinvest earnings at attractive rates of return. I don't want dividends.

Finally, it's also important to pay attention to the balance sheet. Capital (page 7 of BN supplemental information) does just that. Look at the IFRS and Blended columns to get a sense of how much Shareholder's Equity is worth and compare it to the market capitalization. Make sure the debt to capital ratio is low and stable.

Every quarter reviewing just these just these 3 pages should be enough for the average BN investor. As long as the numbers are moving in the right direction, a pleasant return can be expected.

Keeping aside the endless cheerleading and marketing, and looking at just performance numbers, it is a fact that Bruce Flatt has handily beaten the SP500 index in the past 2 decades. I see no reason to think that he won't continue growing BN and provide good returns to investors. Possibly less impressive than in the past, but that's okay.

Having said all this, numbers alone are not enough. You do need to like and trust Bruce Flatt, which I do, to be a BN investor. However, if you simply can't bring yourself to do so, and think that he is creepy and untrustworthy, it's best to sell and move on.

https://bn.brookfield.com/site...