Power Corporation of Canada (POW.TO)

Equity
Canada
Financial Services

RISK

RETURN

Key risk factors

Good trading liquidity

Considerable default risk

Modest price volatility

Key return factors

Excellent dividends

Weak growth

Slightly undervalued vs peers

Corporate actions & dividendsDividend of CAD 0.563 with an ex-date of 28 Jun 2024.

Company profilePower Corporation of Canada operates as an international management and holding company in North America, Europe, and Asia. It operates through Lifeco, IGM Financial, and GBL segments. The company offers life, disability, critical illness, accidental death, dismemberment, health and dental protection, and creditor insurance; retirement and investment management; asset management; and reinsurance and retrocession; investment advisory, financial planning, and related services; and fund, protection, and wealth management services. It also provides employer-sponsored defined contribution plan, individual retirement account and drawdown, enrollment, communication material, investment option, and education services, as well as taxable brokerage accounts; private label recordkeeping and administrative services; payout annuities, equity release mortgages, life bonds, mortgage, securities, pension, private equity, debt and thematic fund, and financial services; and investment products, such as equity, fixed income, absolute return and alternative strategies, exchange traded funds, trust funds, and model-based separately managed accounts and portfolios. In addition, the company holds interests in various businesses, such as mineral-based specialty solutions; testing, inspection, and certification; cement, aggregates, and concrete; wines and spirits; sportswear and sports equipment design and distribution; materials technology and recycling of precious metals; disposable hygiene products; Atlantic salmon; customer experience and business process outsourcing; regional leisure parks; mobile game development and publishing; and bicycle manufacturing. Further, it generates renewable energy through solar and wind facilities; and designs, develops, and manufactures specification-grade LED solutions and zero-emission vehicles. The company was incorporated in 1925 and is based in Montréal, Canada. Power Corporation of Canada operates as a subsidiary of Pansolo Holding Inc.

Valuation: Slightly undervalued

Multiple

TTM

NTM

P/E

9.90

8.70

PEG

7.50

P/B

1.20

0.60

P/S

0.80

0.40

P/FCF

4.10

3.10

EV/EBITDA

17.40

18.80

Considering past and projected metrics, the stock is slightly 'cheaper' than to its peers. In particular, the stock is reasonably priced on P/E, 'expensive' on EV/EBITDA, undervalued on P/FCF.

Performance: Mixed

The stock has been growing steadily in the past six months, adding 10% in total. There is no clear price trend compared to its global peers from the same sector and industry (as shown above). It has underperformed this peer group by 1ppts over six months and grown 9ppts faster in the past month. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is neutral.

Analyst view: Neutral

The average target price is 42 and suggests 5% upside potential. Usually, this means a HOLD recommendation among investment firms. This neutral recommendation suggests no significant price movement, up or down, in the next 12 months. The most optimistic analyst has a target price of 47.0. This translates into 17% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 42.0. This suggests 4% upside potential. Even the most pessimistic analyst believes there will be stock growth.

Profitability: Average

RoE

Power Corporation of Canada reported a return on equity (RoE) of 11.9% in the last 12 months, up from 10.9% in FY23. The market consensus projects an RoE of 12.1% in FY24, again behind its peers.

RoA

Another important profitability metric, return on assets (RoA), amounted to 0.4% in the last 12 months, an increase from 0.3% in FY23. The market analysts predict that RoA will be 0.4% in FY24, again weaker than its peers.

RoCE

In the last 12 months, the return on capital employed (RoCE) grew to 0.3%, below the peers. The consensus estimate for FY24 for RoCE is 0.3%, again behind the peers.

Net margin

EBITDA margin

Historically, POW.TO has reported average net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 8.0%, a growth from 6.1% in FY23. The company has reported weak EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 6.3% in the last 12 months, up from 5.1% in FY23.

RoIC / WACC = 1(average value creation)

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 1.0 in the past several years. This ratio implies a average shareholder value creation.

Growth: Weak

Revenue

EBITDA

EPS

Free cash flow

POW.TO reported revenue of CAD 33 142mn in the last 12 months, down 20% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS grew 5% from FY23 to CAD 3.94. Market expects EPS to reach CAD 4.59 in FY24.Revenue has been declining rapidly over the past several years (strongly negative), while Rapidly declining revenue has resulted in a sharp fall in EBITDA in recent years (strongly negative). The positive effect of cost control was insufficient, and the bottom line showed only minimal growth (negative-to-neutral). Free cash flow has naturally followed the declining EBITDA. We emphasize the highly volatile dynamics of EBITDA and FCF.

Dividends: Excellent

Dividend paid

Dividend yield

The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, and there is an evident trend. In the past 12 months, the dividend yield has been outstanding and can be rated excellent compared to its peers. At the same time, the average five-year yield has been significantly higher and exceeded most of its peers. On average, the company pays dividends quarterly, which may appeal to investors valuing a regular income stream.

Default risk: Considerable

The risk of default is high. Among the negative credit factors, we point to slow historical revenue growth, bleak profitability, negligible return on capital, weak debt servicing capacity, and inadequate interest coverage. We note strong positions in its industry, low margin volatility, solid cash flow generation, and an favourable capital structure, among the positive credit factors.

Volatility: Modest

In normal market circumstances, POW.TO is as volatile as an index. Put differently, without outstanding market volatility or shocking company news, the stock's price will remain relatively stable. The stock's losses on its worst days (less than 1-5% of the time) will range from very low to minimal. Finally, it may be affected by inherently volatile sector.

Stress-test: Average

In highly turbulent market conditions, POW.TO is moderately volatile. In other words, the stock will move with the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be limited. At the same time, due to inherently volatile sector, its maximum losses could be moderate.

Selling difficulty: Low

POW.TO boasts high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and remains mildly favourable on the days with the lowest activity. However, please consider that under highly turbulent market conditions, the trading volume tends to decrease significantly.

Country risk: Very low

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.

Other risks: Negligible

No other major risks have been identified.