BMOMarch 14, 2022 | 18:43 ET~ Power Corp. POW-TSX Rating Market Perform Price: Mar-14 $39.12 Target $44.00 Total Rtn 17%
Q4/21 Preview Bottom Line: We lower our Q4/21E operating EPS to $0.95 from $1.00 (vs. $1.02 consensus) reflecting modest miss at GWO, in-line results at IGM, and lower-than-expected estimated results at GBLB.
Our 2022E operating EPS lowered to $4.19 (from $4.24) reflecting revised BMO estimates at GWO and GBLB, consensus estimates at IGM, and earnings impact from sale of equity interest in ChinaAMC.
POW reports Q4/21 results on Thursday, March 17, with conference call on Friday, March 18 at 8:30 a.m. ET (1-833-979-2697 or 647-689-6826; Passcode 3389258#; webcast).
Key Points We lower Q4/21 operating EPS $0.95 from $1.00 (vs. $1.02 consensus), for a 2% y/y increase, with the estimate revision reflecting modest miss at GWO, in-line results at IGM, and lower-than-expected estimated results at GBLB. On GWO, Q4/21 Base EPS of $0.89 was below our $0.91 estimate but above $0.88 consensus for 11% y/y growth. The $0.02 miss was due to lower combined expected profit, new business strain, and earnings on surplus (-$0.02 EPS), lower earnings at Empower (-$0.05EPS), partially offset by lower taxes (base tax rate was 9% versus our 14% estimate consistent with GWO's low-teens guide, with the difference contributing $0.05EPS to base EPS) (see note).
On IGM (restricted), Q4/21 operating EPS of $1.08 was in line with consensus for a 26% y/y increase. Earnings contribution from GBLB were lower than expected, owing to lower operating earnings and higher financial expenses.
We revise 2022E operating EPS to $4.19 (from $4.24) to reflect modestly higher BMO estimates at GWO and consensus estimates at IGM post Q4/21 results, more than offset by earnings impact from sale of 13.9% of equity interest in ChinaAMC (see note) and lower earnings estimates at GBLB.
We introduce 2023E operating EPS of $4.61 for a 10% increase. POW has renewed its NCIB in Feb/22 (allow repurchases of 5.3% of S.O.) and with cash at $2.0B+ pro forma the sale of China AMC, we look for an update on capital deployment. Note that management indicated it targets to retain a cash level between $700-800mm.
Target price remains $44, reflecting increased TP at GWO and consensus TP at IGM, offset by increased uncertainty in terms of investment gains at the holdco given current environment. Our target price represents a 25% target discount to NAV.
POW currently trades at 22% discount to NAV, vs. 28% long-term average discount.
Key Changes Estimates Q4 / 21E 2021E 2022E Operating EPS $0.95 $4.71 $4.19 Previous $1.00 $4.75 $4.24 NAVPS $50.26 $58.88 Previous $54.38 $57.81 Disc. to NAV 22.2% 33.6% Previous 21.7% 26.3%