RBC Capital Markets analyst Walter Spracklin is very bullish on Bombardier stock. (Picture: courtesy)
What to do with the stocks of Brookfield, BRP and Bombardier? Here are some analyst recommendations likely to move prices soon. Note: the author may have a totally different opinion from that expressed by the analysts.
Brookfield (BN, NY, US$29.22, Tor., $40.14): Real estate and infrastructure giant at 10-year low
Investors shun the holding of the Brookfield empire to such an extent that the valuation of the title of the company which oversees four companies on the stock market, is at its lowest in more than ten years.
Geoffrey Kwan of RBC Capital Markets estimates that the conglomerate is trading at a 37% discount to the net value of all assets, even applying more conservative standards than IFRS accounting standards to real estate assets.
Pressed by his clients to explain the stock’s depreciation, the analyst admits to being a little perplexed because we have known for quarters that remote work increases the vacancy rate in office towers and that the steep rise in rate devalues the value of buildings. By November, “those concerns were already there and Brookfield was trading at just a 10% discount to its net asset value,” he argues.
The return of this 10% discount, for example, would cause the stock to rebound by 45% to US$42, he illustrates.
Fears regarding the effect of historically rising rates on the market value of properties and their mortgages are “understandable”, but the depreciation of Brookfield’s stock still seems to him “exaggerated”.
In order to support his thesis, Geoffrey Kwan dissects the value of the group in spare parts using the prices of the four listed subsidiaries and the value attributed to the private placements, from which he subtracts the debts.
His calculations show that the share price gives zero value to real estate investments (whose value according to IFRS standards is US$19.56 per share) and attributes a 51% discount to private investments outside the real estate sector (which have worth US$6.97 per share), he says.
Geoffrey Kwan values Brookfield’s long streak as an investor, manager and asset operator, the US$124 billion liquidity at its disposal, the differentiated alternative investment management portfolio, its ability to raise capital and the advantages of its large size.
The analyst nevertheless lowered his target price from US$54 to US$51 in order to adjust to the recent stock market turmoil. This objective represents a discount of 5% compared to the net asset value (NAV) that it establishes and also takes into account an annual growth of 15% of this NAV.
Dominique Beauchamp
