Brookfield considers spinning off its asset management business
Unit could be valued at more than $75bn in one of biggest ever Wall Street listings
Brookfield Asset Management, one of the world’s largest alternative investment groups, is weighing a spin-off of its asset management business into a separate public company that one analyst said could be valued at more than $75bn.
The manoeuvre would simplify the structure of the sprawling Toronto-based company, separating the division that manages $364bn in fee-bearing assets across real estate, infrastructure, renewable energy, credit and private equity on behalf of institutional investors from Brookfield’s $50bn of directly-owned net assets.
“The financial markets have evolved. What people like are asset-light models,” Bruce Flatt, chief executive of Brookfield, told the Financial Times. “It appears that there is an enormous amount of shareholder value to be unlocked.”
Brookfield’s plan to consider a spin-off was disclosed in a shareholder letter attached to earnings results released on Thursday morning. “As we consider these options (including possibly doing nothing), we will report in the quarters/years ahead — and will be pleased to hear any views that you have,” Flatt said in the letter.
Robert Lee, an analyst at investment bank Keefe, Bruyette & Woods, recently valued Brookfield’s asset management business at more than $75bn.
For Brookfield, breaking off the asset management business would be a dramatic shift in strategy.
In addition to its fee-based asset management business, Brookfield also owns a portfolio of real estate including London’s Canary Wharf, two of New York City’s largest office developments and more than 100 US malls. Brookfield built greater control of these assets by privatising its real estate arm, Brookfield Property Partners, last July.
It also owns more than $30bn in combined public equity stakes in infrastructure, renewable energy and industrial investment businesses that it seeded internally and then spun off over the past decade. The net value of Brookfield’s combined interests after accounting for its debt is about $50bn, according to its financial statements.
However, some investors and analysts question whether this empire obscures the value of asset management, which generated fee-related earnings of $1.9bn in 2021 and $6.3bn in distributable earnings, a proxy of cash flows it can pay to investors.
In fourth-quarter earnings released on Thursday, Brookfield reported a $1.1bn net profit for common shareholders, a 74 per cent increase from the prior year. The company also announced a 14-cent quarterly dividend, an increase of 8 per cent.
If Brookfield follows through on its spin-off proposal, it would further acknowledge stockholders’ greater interest in owning so-called “asset-light” investment fee streams versus directly owned assets such as office properties, which are harder to value.
Blackstone Group, the world’s most valuable private equity group with a $160bn public market value, holds virtually no direct investments on its balance sheet, whereas a significant portion of the value of companies such as Brookfield, KKR and Apollo Global Management come from their directly held assets. The latter groups have lagged behind Blackstone in recent years, trading at lower multiples.
“What was really valuable to us for the past 25 years has been that we retained capital and reinvested that capital into the business and kept building it,” Flatt said.
A potential separation comes as Brookfield’s asset management business has become self-sustaining, he said. “That capital today isn’t as important in driving the business as it was before.”
Delivery Hero shares tumble as losses set to continue
Berlin-based company disappoints on profit outlook as it lags behind global rivals such as Uber and DoorDash
Delivery Hero lost more than a quarter of its value on Thursday morning after the food delivery company disappointed on this year’s profitability outlook and investors worry it lags behind global rivals such as Uber and DoorDash.
The Berlin-based group, one of the world’s largest food delivery businesses which operates under brands such as Foodpanda and Talabat, enjoyed supercharged growth during the pandemic lockdowns.
The company is investing heavily to build hundreds of small urban warehouses to enable rapid deliveries of groceries and other kinds of ecommerce, where it faces stiff competition from private start-ups such as Getir and Gopuff.
Total customer spending on Delivery Hero’s apps for the fourth quarter of 2021 grew by 39 per cent to €9.64bn, the company reported on Thursday, a deceleration from the 81 per cent growth in the same period in the previous year and slightly below analysts’ expectations.
Revenues for the full year were up 89.5 per cent year on year to €6.6bn, but losses — after adjusting for certain items — widened to €781mn.
Delivery Hero said it expected gross merchandise volumes of €44bn-45bn this year but would not achieve overall profitability.
Analysts at Citi said the 2021 results were “slightly disappointing”, while guidance for the coming year implied earnings before interest, taxation, depreciation and amortisation of €440mn-540mn, or 15 per cent below consensus expectations at the midpoint of the range.
Shares in the company were 25 per cent lower by midday at €50.34. The company’s market capitalisation has almost halved so far this year to €12.5bn, as investors have taken a dimmer view on lossmaking tech stocks overall.
“Overall it was a super quarter. We have been outgrowing the industry this year,” said Niklas Östberg, Delivery Hero’s chief executive.
But he conceded that “certain actions to increase future profitability”, such as reducing promotional incentives and pushing to increase customers’ spending on each order, may have hit revenue growth by “a couple of per cent”.
Delivery Hero has accelerated its push into rapid food delivery services, where its couriers take groceries and convenience items to customers from small urban warehouses operated by the company. This Dmart business sees Delivery Hero taking greater control of its operations than its traditional business of ferrying meals from restaurants, and therefore requires upfront investment in property and logistics, executives have argued.
Delivery Hero opened more than 200 Dmart warehouses in the fourth quarter, taking its global total to 1,074 by the end of the year.
While Delivery Hero forecasts its traditional restaurant delivery business to become profitable this year — at least by its own measure of adjusted earnings as a percentage of total customer spending — heavy investment into quick commerce will continue to drag on overall profits.
Nonetheless, Delivery Hero insisted that it has a “clear path” to profitability, driven by scale and increased automation.
Gapping down
In reaction to earnings/guidance:
- TWOU -27.9%, VMEO -24.2% (also CFO to step down; also CEO expected to go on maternity leave in April), SGEN -16.4%, IRBT -15%, UDMY -11.3%, LUMN -10.8%, INNV -10.7%, QUOT -8.9%, CDAY -8.7% (also promotes Leagh Turner to Co-CEO), MESA -7.4%, GOOS -6.7%, PI -6.4%, DBD -6.2%, CS -5.6%, TTMI -4.5%, FLNC -4.1%, MT -3.6%, EQT -3.3%, IREN -2.3%, ZBRA -2.3%, REXR -2.2%, UMC -2%, TTE -1.9%, MC -1.8%, MOH -1.8%, UL -1.7%, SON -1.5%, CAMT -1.3%, GPN -1.3%, HII -1.2%, MDU -1.1%
Other news:
- AGLE -12.4% (stock offering)
- TWST -5.6% (announces $200 mln common stock offering)
- WDC -2.1% (announces contamination of certain material used in its manufacturing processes)
- AGFY -1.2% (stock offering)
- RKLB -0.8% (announces launch window for Electron mission for Synspective)
Analyst comments:
- USX -26.5% (downgraded to Underweight from Neutral at JP Morgan)
- CMP -1.9% (downgraded to Underweight from Neutral at JP Morgan)
Gapping up
In reaction to earnings/guidance:
- TWLO +20%, DDOG +14.1%, MQ +12.9% (expects to outperform prior Q4 revenue guidance; also names new CFO), CYBR +12.2%, MAT +10.9%, DIS +7.3%, BLBD +6.8%, STC +6.2%, INTA +5.7%, UBER +5.4%, SONO +5.4%, BAM +5.4%, ORLY +5%, ACGL +4.4%, LCII +4.4%, LH +3.7%, RAMP +3.5%, TPR +3.5%, CPA +3.3%, TWTR +3.3%, ASX +2.9%, DIOD +2.8%, AEIS +2.7%, PBF +2.7%, LIN +2.6%, AZN +2.5%, CHX +2.2%, ASGN +2%, TU +2%, MLM +1.8%, EFX +1.7%, WEX +1.7%, AFG +1.6%, MGM +1.6%, GFL +1.6%, WSO +1.5%, KIM +1.4%, INMD +1.4%, GPI +1.2%, TSM +1.1%, KO +1.1%, MFC +1%
Other news:
- IRNT +21.9% (signs contract with a Gulf Cooperation Council country)
- LH +8.3% (announces long-term laboratory relationship with Ascension)
- PNNT +4.3% (increases dividend and authorizes $25 mln share repurchase program)
- RRC +2.4% (announces Q4 production pricing cap-ex)
- OAS +2.3% (outlines return of capital plan provides preliminary 4Q21 results)
- AFMD +2.1% (announces the publication of pre-clinical data)
- HGEN +1.9% (Launches Managed Access Program for Lenzilumab)
- SGFY +1.7% (signed an agreement to acquire Caravan Health for an initial purchase price of ~$250 mln in a combination of cash and Signify Health common stock)
- SST +1.5% (stock offering)
- TEAM +1.3% (exploring redomiciling of its parent holding co from UK to the US)
- PHAT +1.2% (announces top-line results from Phase 2 PHALCON-NERD trial of vonoprazan)
- CRM +1.1% (tells employees it plans to release an NFT Cloud according to CNBC)
- RDN +1.1% (increases dividend and authorizes $400 mln share repurchase program)
- PBR +1.1% (reports its reached production targets for FY21)
- GSK +0.9% (receives approval for Benlysta from China's National Medical Products Administration)
Analyst comments:
- AMBA +4.3% (upgraded to Outperform from Neutral at Robert W. Baird)
- CCOI +3% (upgraded to Overweight from Neutral at JP Morgan)
- THC +1.6% (upgraded to Buy from Neutral at UBS)
- STNG +1.3% (upgraded to Neutral from Underperform at BofA Securities)
Early premarket gappers
- Gapping up:
- IRNT +21.7%, TWLO +19.7%, MQ +11.2%, MAT +10.6%, DIS +7.7%, BLBD +6.8%, SONO +6.4%, STC +6.2%, INTA +5.7%, UBER +4.9%, ACGL +4.4%, PNNT +4.3%, RAMP +3.6%, ORLY +3.4%, CPA +3.3%, EFX +2.8%, DIOD +2.8%, AEIS +2.7%, APAM +2.4%, AZN +2.3%, AFMD +2.1%, MGM +2.1%, ASGN +2%, PBR +1.6%, AFG +1.6%, GFL +1.6%, LIN +1.5%, ENVA +1.4%, TEAM +1.3%, GSK +1.3%, RRC +1.2%, PHAT +1.2%, TSM +1.2%, RDN +1.1%, PEP +1.1%, HGEN +1%, MFC +1%, ASX +0.8%, NLY +0.7%, MRK +0.5%
- Gapping down:
- TWOU -24.1%, VMEO -21.2%, SGEN -16.3%, AGLE -15.5%, IRBT -15%, QUOT -14.4%, LUMN -11.9%, UDMY -11.3%, PI -8.6%, MESA -7.4%, CDAY -6.2%, FLNC -5.5%, CS -4.7%, SST -4.4%, TWST -4%, TTMI -3.7%, MT -3.7%, CXW -3.6%, DCP -2.9%, EQT -2.3%, IREN -2.3%, REXR -2.2%, MC -1.8%, MOH -1.8%, UMC -1.4%, AGFY -1.2%, UL -1.2%, WDC -1.1%, MDU -1.1%, TTE -1.1%
EV Charging Network Will Target Interstate Highways
Money approved by Congress for electric-vehicle chargers should first build out a network on high-use corridors, federal officials say
WASHINGTON—The $5 billion program to create a national network of electric-vehicle charging stations will give priority to interstate highways and fast chargers before expanding into remote rural and crowded urban areas, federal officials said.
On Thursday, Biden administration officials plan to roll out guidelines for states applying for federal funds to build the charging stations. The charging network is considered a key part of the administration’s plan to accelerate a transition to clean-energy vehicles.
Dotting the interstate-highway corridors with charging stations is considered a priority because it will give EV motorists confidence that they can take long-distance trips without trouble recharging, the officials said.
The roughly $1 trillion federal infrastructure bill approved by Congress last year included two pots of money for charging stations totaling $7.5 billion, which could start going out to states as early as September, according to federal officials.
As part of the plans being released Thursday, the administration would grant $615 million to states in the first 12 months of that program—with the biggest allocations to Texas, California and Florida—using a formula that mirrors traditional federal highway grants to states.
The guidelines will stipulate that states should focus on interstates before building elsewhere.
Under the guidelines, the U.S. transportation secretary will certify plans that connect high-use corridors, mostly interstates. Many of the corridors are already set by the federal government, but in their grant requests states can ask for approval to adjust or expand them.
Stations will have to be installed every 50 miles, no more than one mile off the interstate, according to a guidance memo by the Federal Highway Administration. And stations will have to have at least 600 kilowatts of total capacity, with ports for at least four cars that can simultaneously deliver at least 150 kilowatts each.
The stations also have to be accessible to the general public, or to fleet operators from more than one company. The locations can include privately owned parking lots if they are open to the general public.
Administration officials said their goal is to accommodate a public that wants recharging stations to be just as easy to access as gas stations for traditional cars. That led them to focus on highway-side locales that would serve drivers using cars and trucks for long family trips, vacations or transporting goods, and stations that could recharge cars quickly.
In its memo, the highway administration said it expects most states to contract with private-sector entities to install and operate the stations. The federal money can support only 80% of the cost of these stations, the memo said.
The Transportation and Energy departments, which are jointly implementing the charging-station programs, said they will announce the rules for the other $2.5 billion in funding later this year.
That pot of money will fund two other discretionary grant programs that can go to any state to further fill in gaps and cover high-demand areas in the nationwide system, and to support disadvantaged communities, especially rural areas, that are underserved or overburdened.