Brookfield (TSX:BN) Launches Preferred Shares, Is The Stock A Bargain?

Brookfield (TSX:BN) has launched a CAD 150 million fixed income offering of non convertible Class A preferred shares, issuing 6,000,000 securities at CAD 25 each. This preferred issue gives investors another way to access Brookfield’s capital structure.

Brookfield’s common shares trade at CA$53.43. That price level comes after a 1 month share price return of 2.45%, but a year to date share price decline of 16.63%. The 3 year total shareholder return of 102.39% hints that long term momentum has been much stronger than the recent pullback.

Compare Brookfield’s move with a curated list of other resilient issuers tapping capital markets through preferreds and strong balance sheets in our list of solid balance sheet and fundamentals (7 results)

The common shares trade well below the current analyst price target range, while Brookfield raises fresh capital through preferreds. Where does a reasonable estimate of fair value actually fall between those markers?

Most Popular Narrative: 35% Undervalued

On the most followed valuation view, Brookfield’s CA$53.43 share price sits well below an implied fair value of about CA$82. This frames the gap between its current preferred offering and what long term holders are watching.

On IFRS numbers BN looks like a low-return, highly levered conglomerate. On its own look-through measures it earns low-to-mid teens on equity. Which lens is right is the investment question.

See why 7 investors see Brookfield as 35% undervalued.

Result: Fair Value of CA$82 (UNDERVALUED)

Still, Brookfield’s reliance on Wealth Solutions’ related party assets and the slow conversion of unrealised carry into cash could quickly challenge the view that the shares are 35% undervalued.

Find out about the key risks to this Brookfield narrative.

Next Steps

Mixed signals on Brookfield’s value story can be confusing, so review the full picture and weigh both sides through 1 key reward and 2 important warning signs.

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