TSX:POW - Post Discussion
Post by
lb1temporary on Mar 19, 2021 8:19am
TD: Q4/20 Conference Call Takeaways
Power Corp. held its conference call yesterday. Key takeaways are presented below.
The investment platforms are showing solid fund-raising momentum. Management expects Sagard Holdings to reach break-even profitability within ~2 years, while Power Sustainable Capital is expected to take longer (~4 years). Total funded AUM of $5.6bln is up from $5.3bln q/q. This reflects Sagard Holdings at $3.7bln and Power Sustainable Capital at $1.9bln. 46% of funded AUM is third-party capital. Unfunded commitments of $2.9bln are up materially from $2.0bln q/q (80% of which is third-party capital).
Year-to-date fundraising has been evident as well. Sagard Holdings launched a Canadian mid-market PE strategy and a US$0.7bln Healthcare Royalty fund. Similarly, Power Sustainable Capital has just launched a thirdparty capital model with a $1bln infrastructure fund, and the Power Pacific platform (China) has secured $0.1bln in third-party capital to-date.
Power Corp has achieved 61% of its targeted $50mm in annual corporate expense reductions. Power Corp still intends to redeem $350mm of preferred shares (our estimates reflect a redemption by 2022).
Capital return priorities remain focused towards supporting the operating companies and share buybacks. Absent any M&A, Power Corp sees share buybacks as an attractive option for excess capital (given the wide discount to NAV). Management estimates working capital cash requirements of ~$0.8bln, which compares with a cash balance of $1.2bln (Q4/20).
Management sees further opportunities to simplify the business. This could include consolidating some of its investments (China AMC, Wealthsimple, and likely other fintech investments) and adjusting for the cross-ownership between Great-West and IGM. Although GBL could be classified as a non-financial services HoldCo, management does see value in maintaining its ownership stake.
Power Corp. is trading at a 27.2% discount to NAV and 9.3x P/E (4QF). Valuation is arguably attractive relative to the historical discount to NAV of ~20%, but in line with the L5Y P/E average of 9.3x. See exhibits 1 and 2. We believe that Power Corp. should be trading at a premium to its L5Y average, given good execution by management to simplify the business, reduce expenses, increase transparency, and improve investor communication.
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