Nat. Bank Financial: Target at 41$ from 38$NAV Upside Emerging
Adjusted EPS of $1.16 compares to street $0.71 and NBF $0.88
Realized gains on the sale of common shares within the Power Pacific funds and net carried interest earned on fair value changes of various investments including Wealthsimple drove a stronger than expected result in the Alternative and Other Investments segment. GBL also produced a higher contribution as performance of underlying investments in Imerys and Sienna Capital improved. Contributions from GWO and IGM increased 36% y/y and 25% y/y, respectively (see results here: GWO and IGM). Corporate operating expenses of $36 mln in Q1 declined 16% y/y and fell below management’s target quarterly run rate of $38 mln, a clear sign POW remains on track to deliver efficiencies.
NAV increasing materially
Power Corp. NAV per share increased 11% q/q to $45.94 from $41.27, primarily due to the increasing share price in GWO and IGM, and the revaluation of Wealthsimple (held in Sagard Holdings). As of close on May 13th, the NAV per share increased an additional 9% to $50.12, primarily due to the same factors above (including Q1 reported date).
Discount to NAV appears fair historically
POW currently trades at a ~26% discount to NAV compared with the one and five-year average of ~27% and ~32%, respectively. The discount to NAV narrowed to a low of ~22% post-reorg in late 2019 and widened to a peak of ~30% (excluding some COVID noise).
Reiterate Sector Perform;
PT moves to $41 (was $38) As outlined in our initiating coverage report, we see near-term NAV upside from strategies to i) further simplify the business model, ii) drive a rerate of operating company valuations, and iii) realize value on standalone businesses and other investments. Longer term, we see upside from growth in the alternative asset management platform. We reflect these views through i) our above-consensus Price Target on IGM Financial, and ii) a narrowing of POW’s discount to NAV to 22% from the current 26%. Our Price Target increases on the recent increase in POW’s NAV per share (see above). However, we rate POW shares Sector Perform given that stronger total returns exist elsewhere in our coverage universe - including the 29% return to target at IGM.