Deciding between Power Corporation (TSX: POW), or its subsidiary Power Financial (TSX:PWF) can be quite difficult. Since Power Corp owns Power Financial, both are similar and own a handful of other public and private companies.
Since Power Corp is the parent company, most of its value is made up in its holdings of Power Financial. It has a 65.5% ownership stake. Power Corp also owns a few assets that are not tied to Power Financial, such as Power Energy and Sagard Investment Funds.
To value both companies, you first have to value Power Financial, as most of its value is what makes up Power Corp.
Power Financial
Most of Power Financial’s assets are in Great-West Lifeco, IGM Financial, and Pargesa.
The Great-West life holdings in Power Financial’s portfolio, are equal to roughly $21 billion. Great-West is predominantly a life insurance company, with other insurance and financial interests as well. The company has been treading water the last few years for a couple of reasons.
The main reason is because its acquisition of Putnam Investments has underperformed. Great-West paid a premium for Putnam back when it was acquired. Since then, the mutual fund industry has come under pressure to lower management costs. This has weighed on earnings for Great-West, which is why its stock has been treading water the last few years.
IGM Financial is another main holding of Power Financial. The 61.5% ownership of IGM is worth roughly $5.44 billion. IGM’s two main assets are Mackenzie Investments and Investors Group. Both these companies are in the highly competitive financial industry, which has dampened any price appreciation in IGM’s stock, similar to Great-West.
Much of the other assets Power Financial owns are private. It owns 27.5% of Pargesa though, which owns 50% of Groupe Bruxelles Lambert, currently valued at €13.7 billion. Therefore, Power Financials stake is worth about €1.9 billion, or ~$2.9 billion.
In total, Power Financial’s public assets make up about $28 billion. Compare that to Power Financial’s current market cap of $20 billion. Traditionally, these conglomerates always trade at a discount to the underlying net asset value of their investments. The key for long-term investors is to watch the discount and invest as it widens.
The main reason to make an investment in Power Financial would be its dividend. It doesn’t seem like there will be meaningful price appreciation in the short term. The dividend, however, is stable and yields a hefty 6%.
Power Corp
Power Corp mainly holds Power Financial with a few other exclusive investments. Power Corp’s 65.5% ownership stake in Power Financial is worth about $13.3 billion. Power Corp has a market cap of $10.7 billion. Additionally, Power Financial was trading at a discount, so Power Corp’s discount is even larger.
As with Power Financial, an investment in Power Corp would be worthwhile for income, as it yields a stable 5.6%. Both companies have been relatively flat the last half decade, as have the main holdings of Great-West and IGM. With no catalysts for upward price momentum any time soon, it seems that these companies are only an option for investors seeking income.
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