Post by
lb1temporary on Mar 19, 2021 8:37am
Desjardins: Target at 37$ ( from 34$)
4Q20—putting money where their mouth is
The Desjardins Takeaway Power Corporation (POW) reported 4Q20 results. Impact—positive.
We are encouraged by the actions to simplify the corporate structure and improve communication, and we view valuation as attractive. We increased our estimates, raised our target to C$37 (from C$34) and maintained our Buy rating.
Adjusted EPS was C$0.93 as reported vs our C$0.87 estimate and consensus of C$0.79. Relative to our estimates, lower corporate expenses, higher earnings from standalone businesses and investment platforms (tough to model) contributed to the beat.
Other notable items. (1) It achieved 61% of targeted expense reductions (vs 47% last quarter). (2) The investment platforms (Sagard, Power Sustainable Capital) have been launching new funds and raising third-party capital. Sagard Holdings recently announced a first closing of its second credit fund (US$650m of commitments so far), the launch of its private equity platform and the final closing of the Sagard Healthcare Royalty Partners LP (US$725m in commitments). Power Sustainable Capital also launched a C$1b investment platform dedicated to the North American renewable energy sector. (3) Management remains committed to realizing value on several non-core investments. (4) It had C$1.2b of cash and equivalents, or C$850m after factoring in the potential redemption of preferred shares (which it committed to in the restructuring). For perspective, management targets a cash balance of ~C$750m. Potential uses of cash may include supporting operating businesses and, potentially, buybacks. (5) Any details that would help us and investors value its alternative investment platforms and understand the components of the standalone businesses would be welcome.
Valuation We derive a C$37 target (up from C$34) using two methods: (1) a 20.0% discount to our projected NAV (down from 25.0%), and (2) a P/E of 11.0x (up from 10.0x).
Recommendation
We believe there are several ways management could surface value, it has executed against various initiatives and valuation remains compelling (27.4% discount to NAV).