Recent earnings reports, Brookfield Asset Management & Constellation Software
BAM $48 billion increase in fee-bearing capital YoY, 85% increase in Funds from operations. CSU delivered a 35% increase in revenues YoY.
My Canadian stocks Constellation Software and Brookfield Asset Management represent almost 22% of my portfolio, and they have delivered solid results in the latest quarter. Over a longer timeframe, CSU has produced almost 11 000% return without considering dividends, since its public inception in June 2006. The company’s overperformance continues to this day producing a return of 280% in the last five years.
Quarterly results
Constellations revenues increased by 35% from $922 million to $1249 million USD. Cash from operations decreased by 28% from $236 million to $171 million USD, not a big deal since the difference in income tax reduced cash flows by 78 million compared to last year.
Constellation used $292 million on acquisitions in the quarter and $606 million YTD, which is a nice amount in my opinion and should turn out to boost revenues and drive free cash flow in the future.
Brookfield Asset Management is firing on all cylinders. Fee-bearing capital increased by $48 billion to $325 billion in the last twelve months, which produces a steady stream of fee-related earnings going straight to BAM. Fee-related earnings have increased from $707 million in 2017 to $1600 million in the last twelve months.
Realized carried interests and good operating results, resulted in increasing funds from operations to $7556 million in the last twelve months from $4075 million in 2020.
As I mentioned in my previous post about KKR, I think that alternative assets managers have a great opportunity to increase AUM and operating results in this low-yield environment. Investors search for yield and Brookfield and KKR have the experience and reputation for delivering good results to institutional clients.
What’s driving returns?
In Constellations case it’s continuing to reinvest a majority of cash flows into bolt-on acquisitions to increase overall revenues and operating income. Looking at the graph below that consists of rolling twelve months cash from operations and free cash flow in million CAD, the company’s ability to deliver large and consistent increases in cash from operations is incredible.
Revenue per share and EBITDA per share moves consistently upwards, with an improvement in margins over time except for a negative impact in the short term.
Can the company continue to grow?
Looking at the graf, Constellation is actually ramping up acquisitions and investing over $100 million USD per month. Looking at past performance, one could assume that the cash is invested in value-accretive deals for shareholders. Returns on equity and returns on capital have been on average over the last five years 39.4% (ROE) and 28.2% (ROIC).
Great podcast and videos to watch
If you would like to invest the time and your attention to watch Bruce Flatt’s video, I think it could be beneficial.
Brian Feroldi’s knowledge could be very helpful for finding quality companies and I certainly enjoyed this episode. If you are not following him on Twitter I would highly recommend that you do. Following profiles like his is what makes social media incredibly valuable.
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Disclosure!!
Always do your own research before investing in a stock!! No one knows whether a stock will go up, down, or sideways at any given time, and I’m no exception to that rule. I hope that you enjoyed this post but It should not be considered financial advice.