Desjardins : Target at 47$ (prior 45$)The Desjardins Takeaway
We are publishing our Power Corporation (POW) monthly NAV update. As of August 31, 2021, POW’s discount to NAV was 18.6%, down from 23.5% at July 30, 2021. We increased our target price to C$47 (from C$45). Our Buy rating and investment thesis are both unchanged
Highlights
Our rating on POW (Buy–Average Risk) is unchanged. The company has executed on various initiatives that it outlined at the time of the POW/PWF reorganization (completed in 2020), such as: (1) achieving 89% of targeted expense reductions; (2) launching new funds and raising additional third-party capital; (3) further simplifying its corporate structure (collapsing the GBL/Pargesa structure); (4) realizing value on certain core investments (such as Wealthsimple); and (5) realizing value on non-core investments (Lion/NGA merger). Further actions to surface value are a possibility, in our view. POW has C$1.1b of cash and equivalents, and management targets a cash balance of ~C$750m. Potential uses of cash may include supporting operating businesses and, potentially, buybacks. We are encouraged by the actions to simplify the corporate structure and improve communication.
Valuation
We derive our C$47 target using two methods: (1) a 20.0% discount to our projected NAV; and (2) a P/E of 12.0x (up from 11.0x).
Recommendation
While management has executed on various initiatives over the past few years, we still believe there are other ways in which it can surface value in the future.