CIBC: Target at 47$ (from 44$)Demonstrating Continued Progress On Strategic Objectives
Our Conclusion
NAV growth was strong in Q2 given the solid performance of GWO and IGM, but was generally in line with expectations. The company made further progress on its expense reduction efforts in the quarter and remained active on strategies to create value at the operating companies. We estimate that Power trades at a 23% discount to its current NAV. We are raising our price target to $47 (from $44 previously) to reflect continued NAV growth.
Key Points
NAV growth in line with expectations. Net asset value per share increased 12% on a sequential basis, again driven by strong performance of the underlying operating subsidiaries. Great-West Lifeco (Neutral rating, $42 price target, covered by Paul Holden) and IGM Financial (Outperformer rating, $55 price target) both outperformed in Q2, delivering a total return of 11% and 16%, respectively, versus the S&P/TSX Composite Index at 9%. POW’s other investments (i.e., excluding the three operating companies) also contributed to NAV growth in the quarter, which was driven by a step-up in the value of standalone business. This appears largely related to Lion Electric which is now carried at fair market value as opposed to the subscription price of the SPAC. Going forward, we would expect this element of NAV to display some variability given that POW’s investment in Lion will be marked-to-market on a quarterly basis.
Demonstrating continued progress on strategic priorities. POW has remained highly active with respect to value-creation strategies at its underlying portfolio companies. Most notably, Empower Retirement (a subsidiary of GWO) announced an agreement to acquire Prudential Financial's full-service retirement business in July for $4.5 billion. Other subsidiaries of GWO including Irish Life Group and the Canada Life Assurance Company also announced a pair of smaller-scale transactions. POW indicated that it has now achieved 89% of targeted expense reductions, up from 66% in Q1.
Discount to NAV has narrowed slightly. We estimate that Power Corporation trades at a 23% discount to its current NAV, versus an approximate range of 27% to 28% since we initiated coverage one year ago. We believe this is justified and continue to advocate that the stock should trade at a narrower discount, particularly in the context of recent expense reduction efforts. Increasing price target.
We are raising our price target to $47 (previously $44) primarily to reflect continued NAV growth. Our price target is based on our internally generated price targets for GWO and IGM and a 20% discount to NAV (which we contend is conservative).