Sign in

    Brookfield Business Partners LP (BBU)

    Q1 2024 Earnings Summary

    Reported on Feb 18, 2025 (Before Market Open)
    Pre-Earnings Price$18.93Last close (May 2, 2024)
    Post-Earnings Price$19.20Open (May 3, 2024)
    Price Change
    $0.27(+1.43%)

    What went well

    • Strong performance and value creation at Clarios, with EBITDA increasing from $1.6 billion at acquisition to nearly $2 billion, driven by operational improvements and a shift towards higher-margin AGM batteries, which are twice as profitable as traditional batteries. AGM battery sales have grown from single digits to 30% of total sales, with OEM sales being 60-70% AGM, indicating strong future aftermarket demand. Multiple monetization options are available, including partial sale, dividend recapitalization, or public listing, potentially unlocking significant shareholder value.
    • Recovery and improved performance at BrandSafway, with EBITDA up 40-45% from trough levels, consecutive quarter-over-quarter improvements, and an enhanced cash flow profile. Successful debt repricing reduced interest expenses by $13 million annually, reflecting stronger financial performance and investor confidence.
    • Active capital recycling and monetization of non-core assets, with plans to continue selling smaller businesses to recycle capital and focus on core operations. The company has 23 businesses, with 5 generating the vast majority of earnings, and improved capital markets are conducive to more monetizations in the near and medium term, potentially unlocking additional value.

    What went wrong

    • High leverage in key subsidiaries may present financial risks. Clarios, one of BBU's significant investments, has a leverage ratio of around 4x to 4.1x on a last twelve months (LTM) basis. High debt levels could pose challenges, especially if market conditions worsen.
    • Earnings concentration in a few businesses increases risk exposure. BBU owns approximately 23 businesses, but five make up the vast majority of earnings. This concentration means that any underperformance in these key businesses could significantly impact the overall financial results.
    • Operational challenges in certain businesses may delay profitability improvements. Healthscope is facing near-term challenges, and material improvements in financial performance may take time. Additionally, cost overruns at Multiplex due to project delays from rare weather events highlight potential risks in their construction segment.

    Q&A Summary

    1. Clarios Performance and Monetization Plans
      Q: What drives Clarios' earnings growth and monetization options?
      A: Clarios has increased EBITDA from $1.6 billion to nearly $2 billion by improving operations and focusing on growth opportunities. A key driver is the shift towards AGM batteries, which are twice as profitable as traditional batteries and now represent 30% of sales, up from single digits when they acquired the business. They are exploring multiple monetization options, including a partial sale, dividend recapitalization, or public listing, but will not rush the decision.

    2. CDK Value Creation and Monetization Strategy
      Q: How is CDK performing, and what are the monetization plans?
      A: CDK improved EBITDA margins by 1,000 basis points to reach 47% this quarter, achieving this in 18 months instead of the planned three years. They sold non-core assets at strong multiples and carved out another valuable segment. The business is enhancing its technology, including AI capabilities, and focusing on more profitable revenue streams. With significant growth ahead, they are in no rush to monetize.

    3. BrandSafway Turnaround and Financial Position
      Q: Is BrandSafway at a turning point in its investment?
      A: BrandSafway has recovered significantly from COVID challenges, with EBITDA up 40–45% from trough levels and consecutive quarter-over-quarter improvements. They repriced debt, reducing the spread by 100 basis points and saving $13 million annually in interest expenses. Improvements are driven by pricing actions, better commercial strategies, and cost initiatives, with growth opportunities in industrial markets like data centers, EVs, and semiconductors.

    4. Monetizing Smaller Legacy Assets
      Q: Will you continue selling smaller legacy assets?
      A: With 23 businesses in the portfolio but five generating the majority of earnings, they plan to continue monetizing smaller businesses where value creation plans are fulfilled. Improved capital markets make it conducive to see more monetizations in the near to medium term.

    5. Healthscope Challenges and Improvement Prospects
      Q: What catalysts are needed to improve Healthscope's performance?
      A: Healthscope is seen as a good long-term investment due to its role as critical infrastructure in Australia, despite short-term challenges. They are focused on executing an improvement plan and collaborating with stakeholders to create a more sustainable operating environment, expecting progress over time while remaining confident in the business.

    6. Clarios Leverage Ratio Progress
      Q: What is Clarios' current leverage ratio?
      A: Clarios' leverage ratio is approximately 4x to 4.1x, nearing their goal of 4x, supported by strong earnings contributions over the past three quarters.

    7. CDK Organic EBITDA Growth
      Q: What is CDK's organic EBITDA growth excluding ownership increase?
      A: The increase in their ownership from 20% to 26% contributed about $10 million to $15 million to adjusted EBITDA. Excluding this, the organic growth reflects the underlying performance improvements.

    8. Multiplex Cost Overrun
      Q: Can you quantify Multiplex's cost overrun?
      A: One project in Australia experienced delays due to rare weather events, impacting costs, but overall, Multiplex is performing well. They have adjusted future contracts to better protect against such risks.

    Related Publications