What happened
Shares of Brookfield Asset Management (BN -0.15%) surged 35.9% in November, according to data provided by S&P Global Market Intelligence. The alternative asset manager reported its third-quarter numbers on Nov. 12, and while its earnings fell steeply, strong growth in its funds from operations (FFO) and visible signs of recovery in end markets were perfect triggers to lift investors' hopes, especially after the stock's double-digit drop in October.
So what
Brookfield generated $1 billion in FFO in Q3, up 26% year over year. Some of the catalysts were:
- Strong earnings from private equity business, buoyed by new housing starts.
- Steady numbers from its renewables and infrastructure business arms.
- A pickup in volumes from ports and toll road businesses, which took a hit earlier in the year because of the coronavirus lockdowns.
- Steady rent collection from its real estate business.
- An uptick in rent collection from its retail mall portfolio as malls reopened and customer spending improved.
Brookfield's fee-based earnings jumped 22% during the quarter. It also generated a record $2.8 billion in cash available for distribution and/or reinvestment (or CAFDR, as the company refers to it), reflecting the stability of the company's cash flows even during tough times.
Image source: Getty Images.
As of Sept. 30, Brookfield had a whopping $76 billion of capital available to invest. Management foresees enough opportunities to deploy the money, especially as businesses facing a financial crunch in the wake of COVID-19 look for equity. In the third quarter, Brookfield invested $14 billion in several areas including reinsurance. It also repurchased not just its own stock but also that of its subsidiary, Brookfield Property Partners (BPY). During the third-quarter earnings conference call, CEO Bruce Flatt said Brookfield Property Partners' "current trading price does not reflect anywhere near the value of the high-quality portfolio of real estate that it owns," thereby warranting the parent company's move to repurchase shares. Brookfield Property Partners' stock rose nearly 10% in November but is still down about 16% year to date.
Now what
With Brookfield Asset Management flush with cash, investors can expect several deals in the near future. Brookfield has made some meaningful investments this year, including in the U.S. insurance market and India's telecom market. The company boasts a strong balance sheet and pays a steady dividend. With management also expecting to pay a special dividend next year, investors have good reason to remain bullish about the stock.
