Index removal and shelf registration use draw fresh attention
Brookfield Business Partners (BBU) recently dropped out of the S&P/TSX Income Trust Index, a change that can affect fund flows. The partnership has also fully used its 2023 shelf registration for limited partnership units.
See our latest analysis for Brookfield Business Partners.
Recent trading reflects that tension clearly, with a 1-month share price return of a 7.69% decline and a 90-day share price return of an 11.28% decline, despite a 1-year total shareholder return of 35.28%. This suggests that near term momentum has cooled while longer term holders have still seen meaningful gains.
If this kind of repricing has you thinking about where else capital could work, it may be worth scanning for income focused names in our 12 dividend fortresses
With a US$31.46 unit price, a reported intrinsic discount of 71% and a roughly 29% gap to the average analyst target, the key question is simple: is this genuine value or is the market already looking through to future growth?
DCF value gap and what it might be telling you
According to the SWS DCF model, Brookfield Business Partners has an estimated fair value of $109.65, compared with the recent unit price of $31.46, which implies a large implied discount on future cash flows at current levels.
The SWS DCF model projects the partnership's future cash flows and then discounts them back to today using a required rate of return. This provides a single estimate of what those cash flows might be worth in present value terms.
For a private equity style business that is currently loss making, with reported revenue of $27,457.0 million and net income of a $26.0 million loss, a cash flow based approach can help you look past near term earnings noise and focus on the underlying assets' ability to generate cash over time.
Look into how the SWS DCF model arrives at its fair value.
Result: DCF Fair value of $109.65 (UNDERVALUED)
However, investors still need to weigh the recent 38.79% annual revenue decline and the current net income loss of US$26.0 million as potential pressure points on that value story.
Find out about the key risks to this Brookfield Business Partners narrative.
Another view on value using sales multiples
DCF suggests a wide gap to fair value, but the picture looks different when you focus on sales multiples. Brookfield Business Partners trades at a P/S of 0.2x, compared with 1.9x for peers and 0.8x for the broader Industrials group, while the fair ratio sits at 0.2x.
That mix of deep discounts to peers, yet alignment with the fair ratio, points to a balance between potential upside and the risk that the market is already pricing the business closer to where long run sales might justify. The real question is which reference point you trust most for your own process.
See what the numbers say about this price — find out in our valuation breakdown.
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Next Steps
Given the mixed signals in price moves, valuation models and recent results, it makes sense to move quickly, review the underlying data yourself, and then weigh up the 2 key rewards and 3 important warning signs
Looking for more investment ideas?
If you stop here, you miss a chance to compare Brookfield Business Partners with other opportunities that might fit your goals even better, so keep your options open.
- Spot potential mispricings early by scanning screener containing 25 high quality undiscovered gems that pair strong fundamentals with limited market attention.
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- Dial down portfolio stress by focusing on the 62 resilient stocks with low risk scores that still keep your capital working.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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