Valued at roughly $20 billion by market cap, Brookfield Asset Management (TSX:BAM) is One of the largest Canadian companies trading on the TSX. Brookfield Asset Management is an alternative asset manager and invests in cash-generating assets across sectors such as clean energy, infrastructure, private equity, real estate, and credit.
With US$850 billion in assets under management, BAM has investments in more than 30 countries across five continents. It aims to invest in high-quality assets and businesses that form the backbone of economies.
Let’s see if BAM stock can deliver outsized gains to shareholders in the upcoming decade.
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The bull case for BAM stock
Investors globally are looking to invest their widening capital base in alternative assets to diversify their portfolios and generate outsized gains. According to Brookfield Asset Management, the yields for private credit are much higher, between 7% and 10%, compared to bond yields which range between 1% and 5%. Further, annual returns for private equity and other real assets are between 12% and 20%, compared to public equities, which have returned around 10%.
The combination of excess returns, diversification, and predictable cash flows should act as key drivers for alternate asset managers, including BAM.
As institutional investors increase their allocation to alternatives, the assets under management in this segment should increase to US$23.2 trillion by 2026, up from just US$4 billion in 2010. Moreover, institutional allocation towards alternatives will also increase from 5% in 2000 to 60% in 2030.
Despite a challenging macro environment, BAM expects to increase capital inflows by US$150 billion in 2023, increasing its fee-bearing capital to US$1 trillion by 2028, up from US$440 billion today. Its fee-bearing capital stood at just US$129 billion in 2018.
Additionally, BAM aims to increase its fee-related earnings from US$900 million in 2018 to US$4.8 billion in 2028, an increase of 19% year over year.
BAM stock pays shareholders a dividend
A widening base of investments and robust profit margins allow BAM to pay shareholders an annual dividend of US$1.28 per share, indicating a yield of 3.3%. With a debt-free balance sheet, BAM aims to allocate over 90% of cash flows toward dividends. It also expects to increase these payouts by 15% to 20% annually, which is exceptional.
Brookfield Asset Management emphasized that 86% of its fee-bearing capital is long-term in nature, resulting in stable cash flows across market cycles. With US$2.5 billion in cash and US$45 billion in uncalled fund commitments, BAM has significant liquidity to make additional investments.
What is the target price for BAM stock?
In case the total AUM for alternative assets globally touches US$40 trillion by the end of 2033, BAM may end the year with US$2.5 trillion in total assets. Given its current take rate, the company should report revenue of US$10 billion by 2033.
Further, if we estimate a net margin of 18%, BAM’s net profit should rise to US$1.8 billion by 2033. Currently, BAM stock is priced at 30 times trailing earnings. If it continues to trade at a similar multiple, BAM will be valued at US$54 billion by market cap, indicating an upside potential of 250% from current levels.
