Friday File: Hits and Misses on the Earnings Front
by Travis Johnson, Stock Gumshoe | February 17, 2023 5:07 pm
Updates on TTD, WCC, ROKU, SHOP, TOST and KNSL... plus Teqnion, Munger and more...
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Source URL: https://www.stockgumshoe.com/2023/02/friday-file-hits-and-misses-on-the-earnings-front/
Charlie Munger is hilarious. That video is worth watching for its comedic value alone (to say nothing of his usual nuggets of investing wisdom).
He’s the insouciant but really clever (and we’ll-read) grandfather I wish I had. Sometimes quite wrong, but never worried about it.
I believe you are right to be leery of Goosehead. I was a customer for one policy year and generally felt like a “sale” instead of a long-term client. Very transactional company in my opinion. Others may feel differently.
Interesting, thanks for the feedback.
Travis… thanks as always – 1.) your thoughts on Brookfield ‘s “BIP USD / BIP.u CAD – it seems less impacted by macro market turbulence but trades in a (more) narrow range, 2.) DBRG – your comments above are appreciated… I too have ??? about it – ended up trading in and out a couple of times over the past 12 months (which is not my style) and am on the sidelines with it
BIP is a more straightforward yield vehicle, I haven’t looked at it in any detail in a while.
Thank you Travis, very informative and thought provoking as always.
Thank you Travis for the comprehensive overview of your holdings. I remain puzzled by the post split up structure of the old Brookfield:
1) It seems BAM and BN received 25%/75% share distribution respectively in the mother company. 2) BAM is “asset light” and draws management fees while BN buys/sells and operates the individual publicly traded business components: infrastructure, real estate, insurance, alternative energy, and a business company grab bag.
3)Some of these component are simultaneously structure as LPs and 1099 corps, and shares are somehow interchangeable.
4) I count at least 9 “Brookfield” exchange traded options.
5) BAM pays an income generating dividend because it is fee based and BN a token dividend because it is the growth component.
6) The individual components also pay dividends at significant yields.
7) BN is the preferred investment because of its projected growth, which is actually the growth of its component parts. BAM will grow only at 1/3 the rate of BN.
The red flag that goes up for me is remembering how energy companies (KMI is a good example) used to spit up management/pipeline/E&P components of their businesses, differentiating LPs and non-LPs , but not corporate officers, and periodically taking private/going public the same assets, which didn’t benefit shareholders. Management operated across all business components to its own benefit.
What am I missing in this probably incomplete overview of the Brookfield transformation?
BN owns shares of all of its investment funds. They earn money from the distributions those funds make and from capital gains that are distributed, but much of their value stays in these funds (most of which own hard assets, infrastructure and real estate, though private equity and lending are both big businesses too), so it rises or falls as the underlying businesses and assets become more valuable.
The steady cash flow part of the business comes from the fees they charge to manage those funds, both the regular low management fee (a little below 1%) and, less steady, the carried interest they get (a share of profits). They spun out 25% of that asset management business into BAM, so BAM is the steadier and more predictable one, with dividends almost guaranteed to grow 15%+ per year for at least the next few years… it also may be a vehicle to acquire other asset management businesses. Pretty simple and almost guaranteed growth for a while (because they’ve raised money they haven’t put to work yet), with much less exposure to potential loss of value of the various Brookfield funds.
BN to me is worth the sum of the value of the shares of the funds they own, plus they still own that 75% of the asset management business so do still have that cash flow, and they pay a tiny dividend. Looking into the actual funds they own/manage would be the next level stuff, judging whether you think BIP is valued too richly or poorly by the market, or whether the Brookfield Property fund (their biggest, and they own all of it now) is worth more or less than book value. If you think the funds are all worth either their book value or their current market value, then BN is trading at a massive discount to that.
Thank you for helping to clarify the structure for me.
Stem also reported this week. Any thoughts yet? I can’t blame you for concentrating on your bigger positions.
I need to check in on both STEM and FLNC, but haven’t dug through those filings yet.
Thanks, Travis. I’m curious about STEM and FLNC as well.
KEYS today at 151.5. Glad for the opportunity to pick some up.