Power Corporation wants to take its time with the development of its alternative asset investment platforms, which are not yet profitable.
The Desmarais family conglomerate revealed results that exceeded expectations, notably thanks to its participation in the insurer Great-West and the IGM Financial Corporation.
Alternative investment platforms, which represent only 7% of the company’s gross asset value, recorded a net loss of 11 million in the third quarter. This division notably includes the asset manager Power Sustainable.
Asked about the subject, President and CEO Jeffrey Orr said he was prepared to wait before bringing this division to profitability during a conference call with analysts on Tuesday.
He explained that the launch of new strategies pushed back the moment of achieving profitability. However, he believes that by offering a diversity of strategies, alternative asset investment platforms become more attractive to investors. “It pushes back the achievement of profitability, but it creates more value over a three or four year horizon. This is the compromise we make. »
The financial industry is facing headwinds at a time when activities are slowing down, Mr. Orr said.
“The environment is difficult, not only for fundraising, but also for its deployment. There are fewer activities, there are fewer mergers and acquisitions. We read it all the time (in the financial press).
“When you launch a new strategy, you do so when you have deployed the funds from the previous fundraising. If you deploy funds more slowly, your ability to grow and launch new products is reduced. »
Results above expectations
For the entire conglomerate, Power revealed results above analysts’ expectations in the third quarter.
Its net profit reached 997 million, compared to 642 million in the same period last year.
Analyst Graham Ryding of TD Securities points out that adjusted diluted earnings per share at $1.52 are higher than analysts’ consensus of $1.06. The difference is largely attributable to the sale of a company owned by the Groupe Bruxelles Lambert (GBL) division. “Without this element, which we consider exceptional, the profit would have been $1.06,” adds the analyst.
Net asset value
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 the price of its stock. The gap was around 35% in 2015. This gap had fallen to 17% in June 2022, but it has risen to 32% since then. “This is a much larger gap than the 25% average over one and five years,” said analyst Geoffrey Kwan of RBC Capital Markets.
With this gap and a dividend yield above 6%, Mr. Kwan finds the stock attractive to “income-seeking investors who have a long-term horizon.” “They could benefit from a significant revaluation, we believe that Power will continue to make transactions to simplify its structure and unlock value. »
Power’s stock was up $1.19, or 3.48%, at $35.26 on the Toronto Stock Exchange around midday.