BMOAugust 8, 2022 | 17:06 ET~
Power Corp. POW-TSX Rating Market Perform Price: Aug-5 $34.71 Target ↓ $37.00 Total Rtn 12%
Lowering Target on EPS Miss (Ex One Timers) and Lower-Than-Expected NAV
Bottom Line: Q2/22 adjusted EPS (fd) of $0.87 was in line with our $0.86 EPS estimate after adjusting for actual results at GWO/IGM/GBL. Excluding $0.07 EPS one-time favourable items, it was a miss on lower earnings contribution from Sagard/Power Sustainable.
NAV as it relates to POW's investment platforms was 12% lower, primarily due to 47% markdown on Wealthsimple holding.
Current discount to NAV is 17% compared with the 24% discount POW has averaged since the re-org in Feb/2020 and 28% long-term average.
Target price lowered to $37, representing 20% target NAV discount.
Key Points Adjusted EPS was $0.87. Adjusting for actual results at GWO, IGM and GBL would have put our estimate $0.87, in line with actual, as better opex (which was helped by $0.03 EPS in a one-time re-measurement of cash settled share payments - net of this opex was in line), was offset by weaker investment gains (investment gains were $0.03 weaker than expected, but excluding the positive impact of a one-time reversal of long term incentives at Lion, investment gains were $0.07 weaker). Earnings contribution from GWO and IGM (Restricted) were largely in line.
Earnings contribution from POW's investment platforms (i.e., Sagard, Power Sustainable, standalone businesses, and investment/hedge funds) totaled -$7mm, below our $14mm estimate, primarily driven by negative earnings contributions at Power Sustainable related to realized losses in its portfolio in China, partially offset by $0.04 EPS or $28mm one-time gain on a reversal of long-term incentives at Lion. Earnings contribution from China AMC was in line at $15mm, flat y/y. Operating expenses of $29mm versus our $45mm estimate, but excluding a $17mm one-time gain on a re-measurement of cash settled share payments, opex was in line.
Fundraising activities remain solid at POW's alternative asset management platform, which helps offset persistent market volatility, with AUM (both funded and unfunded) staying flat q/q at $19B in Q2/22 (up from $11.6B in Q2/21); third-party AUM represents 84% of total funded AUM (up from 82% in Q1/22). POW bought back ~8.1mm shares for $305mm in Q2/22 and has repurchased 709k shares for $24mm post-Q2/22.
Target price reduces to $37 (from $39) reflecting 12% decline in NAV as it relates strictly to POW’s investment platforms.
Target represents a modestly reduced 20% NAV discount (from 24%, reflecting renewed buyback activity and strong alternative fundraising) vs. 24% discount since its Feb/20 re-org and 28% long-term average.