(Montreal) Power Corporation of Canada will not have to go to the bedside of Wealthsimple, which is “well financed” in the immediate future, assures its president and chief executive officer, Jeffrey Orr.
Posted at 11:24 a.m.
The Desmarais family conglomerate, which has a 54.5% stake in the fintech financial services company, wrote down the value of its investment by 57%, as part of its second quarter results. The investment is worth 900 million as of June 30, 2022, compared to 2.1 billion at the same time last year.
Wealthsimple is among the Canadian tech companies that have had to revise their growth ambitions now that consumers are returning to brick-and-mortar stores and the economic horizon looks uncertain. The Toronto-based company told employees in June that it was laying off 13% of its workforce.
Despite the setback, Mr. Orr defended Wealthsimple on Monday during a conference call with financial analysts. “Management has done an incredible job of creating a brand. She has a large customer base. Customers are satisfied and report a good experience. This segment of the market is the next generation. »
Wealthsimple is “well funded” at the moment and would not need more capital in the short term, assures the leader, who adds that the question remains open in the longer term.
For Power Corporation, its investment in Wealthsimple was a way to gain exposure to fintech companies and “see what would happen.”
Management has not determined what the company’s role will be in the long-term conglomerate and is keeping its options open.
“It’s not just an asset manager’s bet: we’re in the financial services industry. We wanted to take a stake to see what was to come and get a foothold in the emerging digital sector. Whether we’re going to stay long term or not, I think that’s a decision to be made in the future. »
In June, Wealthsimple chief executive Michael Katchen wrote to employees that the company was refocusing on its core businesses, such as investing and banking services, and on products that he said will fuel the financial innovation, such as cryptocurrencies.
The company will reduce investments in other areas such as peer-to-peer payments, tax and merchant services, and restructure teams dedicated to recruiting, marketing, customer success and research.
Results below expectations
Management made the update as Power Corporation reported second-quarter results that fell short of market expectations amid “challenging” economic conditions for the financial industry.
Mr. Orr mentioned that stock markets and bond markets went down in tandem. Outflows for the Canadian mutual fund industry reached a record high for a second quarter in at least a decade.
The conglomerate announced a net profit of 527 million, against 994 million in the corresponding period of the previous year.
Adjusted diluted earnings per share were $0.87, compared to $1.51 per share a year earlier. Prior to the earnings release, analysts had expected earnings per share of $0.95, according to financial data firm Refinitiv. “It was a difficult environment, but the results remain solid,” said CFO Gregory Tretiak.
One of the objectives of Power Corporation, which reorganized its activities in 2020, is to reduce the gap between the value of its net assets and its share price. The gap, which was around 35% in 2015, reached 17% in June 2022.
TD Securities analyst Graham Ryding believes the market reassessment is warranted. “This lower net asset value discount is warranted when considering the progress made in simplifying the business, improving financial reporting, reducing expenses, the creation of value in certain investments and the creation of a fast-growing alternative investment platform. »
Power Corporation shares were down 72 cents, or 2.07%, at $33.99 at the close of the Toronto Stock Exchange.