Desjardins: target at 45$ ( from 43$)2Q21—August sizzle
The Desjardins Takeaway
Power Corporation (POW) reported 2Q21 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$45 (from C$43) and maintained our Buy rating.
Adjusted EPS was C$1.51 as reported vs our estimate of C$0.95 and consensus of C$0.94. Relative to our estimates, higher earnings from GWO, its investment platforms and standalone businesses (tough to model), and various other items contributed to the beat.
Other notable items.
(1) It achieved 89% of targeted expense reductions (vs 66% last quarter).
(2) The investment platforms (Sagard, Power Sustainable Capital) and Portage have been launching new funds and raising third-party capital. Sagard launched a fintech SPAC in 2Q21, raising gross proceeds of US $240m. Sagard Credit Partners II and Portage Ventures III both completed additional closings in July 2021 (US$78m and US$145m, respectively).
(3) Management remains committed to realizing value on several non-core investments.
(4) It had C$1.1b of cash and equivalents. Management targets a minimum cash balance of ~C$750m. Potential uses of cash may include supporting operating businesses and, potentially, buybacks.
(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$45 target (up from C$43) using two methods: (1) a 20.0% discount to our projected NAV; and (2) a P/E of 11.0x.
Recommendation
We believe there are several ways management could surface value, it has executed against various initiatives and valuation remains compelling (21.8% discount to NAV).