TSX Commentary

Brookfield Asset Management (BAM.A) – $23.25 – A Strong Finish To 2009 With Q4 Results Above Expectations
Outperform, Average Risk, Price Target: $27.00 (prev. $24.00)
Brookfield Asset Management “BAM” reported Q4/09 and 2009 results. Q4/09 CFPS of $0.63 was ahead of expectations, and +55% from Q4/08’s $0.41. Investment/Other Income significantly exceeded forecast. RBC CM suspects this line item benefited from both FX gains and positive marks (GGP distressed debt and/or common shares?). RBC CM believes that 2009 was a year in which management sowed the seeds for many years of future “core” CFPS growth. The Company has ~$4B of “core” liquidity. BAM avoided the dilutive effect of issuing common shares in 2008/2009 and it actually continued to invest capital into existing and new business. As a result, RBC CM believes BAM now owns or manages more assets per share (and has greater capital commitments per share) than it did one, two or three years ago. These factors provide important leverage for CFPS growth over time. With the inclusion of Q4/09 results, and reinforced conviction that BAM should now be working its way through the “earnings valley”, RBC CM has raised its 2010/2011 CFPS estimates by +$0.34/+$0.21 to $1.83/$1.99. RBC CM’s $27 price target is derived via the application of a 15x multiple to its 2011E Adjusted CFPS and it equates to a discount of ~10%-15% to RBC CM’s view of potential pre-tax underlying value per share, one-year hence.