Desjardins: Target at 49$ ( from 47$)3Q21—I got the Power!
The Desjardins Takeaway
Power Corporation (POW) reported 3Q21 results. Impact—positive. We are encouraged by POW’s actions to simplify its corporate structure and improve communication, and we view the valuation as attractive. We increased our estimates, raised our target to C$49 (from C$47) and maintained our Buy rating.
Adjusted EPS was C$1.10 vs our estimate and consensus of C$0.94. The beat was driven by higher base earnings at GWO (not a surprise), higher earnings at the standalone businesses and alternative investment platforms which are tough to model (a delta of ~C$0.12 vs our estimate), which offset lower earnings from GBL (actually a loss) and higher operating expenses.
Other notable items.
(1) It achieved 93% of targeted expense reductions that were outlined when it collapsed the Power Corporation and Power Financial structure (was 89% last quarter).
(2) The investment platforms’ earnings included a C$66m gain from the sale of a 37.1% LP interest in its Sagard 3 European fund. Otherwise, its alternative asset investment platforms raised a total of C$3.4b ytd from third-party investors across six strategies.
(3) Management remains committed to realizing value on several noncore investments. In 4Q21, the acquisition of GP Strategies (a publicly traded company) was completed, resulting in POW disposing of its 21.0% equity interest and receiving C$94m in proceeds (pre-tax).
(4) It had C$1.6b of cash and equivalents. Management targets a minimum cash balance of ~C$750m. Potential uses of cash may include supporting operating businesses and buybacks. On the latter, it plans to be more aggressive in the near term.
(5) Any details that would help us and investors value its alternative investment platforms and understand the components of the standalone businesses would be welcome.
Valuation
We derive a C$49 target (up from C$47) using two methods: (1) a 20.0% discount to our projected NAV; and (2) a P/E of 12x.
Recommendation
We believe there are several ways management could surface value, it has executed against various initiatives and valuation remains compelling (20.8% discount to NAV