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Analyst Blog

Brookfield Asset Management Inc.’s (BAM - Snapshot Report) fourth-quarter earnings per share came in at 72 cents, which significantly outpaced the Zacks Consensus Estimate of 30 cents. Yet, this was 16.3% below the earnings of 86 cents recorded in the year-ago quarter.

Better-than-expected quarterly results were aided by a solid top-line growth, partially offset by a rise in operating expenses. Moreover, continued improvement in asset under management (AUM) and strong balance sheet were the other positives.

Brookfield reported funds from operations (net income prior to fair value changes, depreciation and amortization, and deferred income taxes, and includes certain disposition gains that are not otherwise included in net income as determined under IFRS) of $459 million or 67 cents per share in the quarter. This was higher than funds from operations of $397 million or 58 cents per share in the prior-year quarter.

For 2012, net income was $1.4 billion or $1.97 per share, down from $2.0 billion or $2.89 per share in 2011. Earnings per share were, however, substantially ahead of the Zacks Consensus Estimate of $1.37 per share.

Performance in Detail

Total revenue came in at $5.4 billion, surging 30.6% from $4.1 billion in the prior-year quarter. For full year 2012, revenues were $18.6 billion, up 16.8% year over year.

Brookfield’s total return (which includes the company’s share of funds from operations of $459 million and $1.4 billion of valuation gains, partly offset by $35 million of preferred share dividends) was recorded at $1.8 billion. This was marginally lower than $1.9 billion in the prior-year quarter

Total expenses inched up 2.6% year over year to $677 million. The rise was primarily due to a higher interest expenses.

As of Dec 31, 2012, asset under management grew 13.1% year over year to $181.4 million. Further, Brookfield had $2.8 billion in cash and cash equivalents, which soared 41.9% from $2.0 billion as of Dec 31, 2011.

Total assets as of Dec 31, 2012 were $108.6 billion, up 19.4% from $91.0 billion as of Dec 31, 2011. Moreover, the company had $44.3 billion in total equity at the end of the quarter, up 18.3% from $37.4 billion as of Dec 31, 2011.

Dividend Update

Concurrent with the earnings release, Brookfield announced a quarterly cash dividend of 15 cents per share, representing nearly 7% hike from the prior dividend. The dividend will be paid on May 31, to stockholders of record as of May 1. The company also declared all of the regular monthly and quarterly dividends on its preferred shares.

Our Viewpoint

We believe that Brookfield’s continuous acquisition activities along with the growing need for risk management and alternative investment solutions within the financial service industry will contribute positively to the company’s overall expansion going forward. Moreover, its sound capital deployment policy will reinforce investors’ confidence. Nevertheless, the persistent sluggish economic recovery will continue to keep the company’s financials under pressure in the near term.

Currently, Brookfield retains a Zacks Rank #3 (Hold). However, other asset mangers like AllianceBernstein Holding L.P. (AB - Snapshot Report), Lazard Ltd. (LAZ - Analyst Report) and Virtus Investment Partners, Inc. (VRTS - Snapshot Report) carry a Zacks Rank #1 (Strong Buy) and are worth considering.

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