Brookfield Business Partners, with a market cap of $2.4 billion, has lagged the broader markets since its IPO in 2016. Despite this, the stock has returned 70% to shareholders over the past eight years when accounting for dividend reinvestments. Currently trading 23% below its all-time highs, 2024 presents a strategic opportunity to buy the dip. Here’s why I’m bullish on this top TSX stock.
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The Bull Case for Brookfield Business Partners
Brookfield Business Partners is a private equity firm focusing on strategic acquisitions in sectors such as business services, construction, energy, and industrials. The firm targets majority stakes in its investments and aims for annual returns of at least 15%.
Since its inception, Brookfield Business has deployed $9 billion in investments. From 2016 to Q2 2024, earnings from operations (EFO) surged from $200 million to $2.9 billion, showcasing a remarkable 45% compound annual growth rate. Over this period, adjusted EFO per unit rose from $1.45 to $13.45, reflecting a consistent annual growth of 35%.
Key Portfolio Companies
- Sagen: As Canada’s largest private sector mortgage insurer, Sagen boasts a return on equity exceeding 20% and provides an annual cash distribution of $350 million. It has delivered over $2 billion in cumulative dividends.
- Clarios: This leader in advanced energy storage, significantly larger than its competitors, generates $700 million in annual cash flow. Brookfield invested $200 million to acquire Clarios, which has yielded $2.6 billion in cumulative free cash flow.
Is Brookfield Business Partners a Good Stock to Own?
Brookfield has made significant acquisitions recently, with about 50% of its operations acquired in the last three years. These businesses generated an adjusted EBITDA of $500 million over the last 12 months, indicating robust growth potential.
In the past year, Brookfield has raised $2 billion through capital recycling initiatives, which will be reinvested in high-growth projects. The company’s adjusted EBITDA has grown from $1 billion in 2019 to $2.3 billion recently, with margins more than doubling to 20%.
With a favorable interest rate environment, a potential 100 basis point cut could save Brookfield approximately $40 million annually in interest expenses. Projected free cash flow of $800 million by 2028, valued at ten times trailing cash flow, suggests a potential market cap of $8 billion—over 300% upside from current levels.
Additionally, Brookfield pays an annual dividend of $0.25 per share, yielding over 1%. Analysts remain optimistic, forecasting a 25% increase in the next 12 months.
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In summary, Brookfield Business Partners represents a compelling investment opportunity with strong fundamentals, strategic growth prospects, and favorable market conditions.
With its proven track record and substantial growth potential, Brookfield Business Partners is well-positioned for future success, making it a prudent buy in 2024.