TD: Target from 46$ to 50$Strong Execution Not Reflected in Valuation
Event
Q3/21 Conference Call
Impact: POSITIVE
We have updated our estimates to reflect recent changes to our Great-West and IGM Financial forecasts, and modest tweaks following the Q3/21 call. Our target price moves up to $50.00 (from $46.00) to reflect an updated projected NAV and estimates. We are now using more constructive multiples (18% discount to projected NAV vs. 20% previously, and 11.0x-11.5x 4QF P/E vs. 10.5x-11.0x previously) to reflect what we see as solid fundamentals. We reiterate our BUY rating (bolds by TD)
Management indicated that it intends to resume share buybacks under the current NCIB. This seems appropriate to us, given the wide discount to NAV. Furthermore cash increased to $1.6bln (vs. $1.4bln q/q), implying ~$0.6bln of excess cash. We are now forecasting buybacks through 2022.
Alternatives AUM increased to $12.5bln from $11.6bln q/q. This is up 8% q/q and 71% y/y, with third-party AUM now representing 71% of total AUM, up from 54% y/y. Power Corp. is also adding a real-estate vertical with $4.8bln of AUM (plus $2.5mm in commitments) by acquiring EverWest from Great-West. Given the strong growth momentum, we are now valuing this platform at $574mm (7.5% of third-party-funded AUM) within our projected NAV ($0.85/share).
Further evidence of simplification and monetization activity. In Q3/21, Power Corp. sold its $334mm LP position in Sagard Europe 3 (PE fund). In Q4/21, it is selling standalone investment GP Strategies ($94mm in proceeds).
Power Corp.'s 21.6% discount to NAV remains wide, in our view, despite the improving fundamentals. This compares with the L5Y/L10Y averages of 22.1%/21.4%. The current forward P/E is 9.9x, in line with the L5Y/L10Y averages of 9.4x/10.0x. Our one-year out $50.00 target price implies what we view as a reasonable 10.5x forward P/E multiple. TD Investment
Conclusion
We are encouraged with the execution and progress around simplifying the business, improving disclosure, reducing expenses, surfacing value and/or monetizing standalone investments, and building a high-growth alternatives asset management platform (around third-party AUM). Current valuation remains attractive, in our view.