Transatlantic Wealth And Digital Transformation Will Define Success

Key Takeaways

• Demographic trends and digital innovation are driving consistent asset inflows, recurring fee revenue, and long-term earnings growth across wealth and asset management platforms.
  
• Expansion in alternative and sustainable investments, coupled with operational efficiencies, is supporting margin improvement and positioning for continued shareholder returns.
  
• Heavy reliance on core financial subsidiaries, regulatory risk, fintech disruption, and unproven alternative investments threaten earnings stability and long-term profitability.

Catalysts

An international management and holding company, provides financial services in North America, Europe, and Asia.

• Increased demand for wealth management and retirement solutions driven by an aging population and intergenerational wealth transfer in North America and Europe is creating substantial and sustained asset inflows across Power Corp's core subsidiaries (Great-West Lifeco, IGM, Wealthsimple), which should lead to recurring fee revenue and long-term adjusted earnings growth.
  
• The company is benefiting from digital innovation and technology-led transformation, as evidenced by double-digit AUM growth at digital platforms like Wealthsimple and record flows at IG Wealth; these enhancements are expected to provide continued access to new customer segments and improve operational efficiency, supporting both net margin expansion and revenue growth going forward.
  
• Platforms such as Sagard and Power Sustainable are attracting substantial net new third-party assets, despite a tough fundraising environment, indicating that Power is well-positioned to capitalize on the growing focus on alternative and sustainable investments, which positions the company for increasing long-term fee-based revenue streams and improved group earnings.
  
• Ongoing cost containment and operational efficiency initiatives, propelled by digital transformation across key subsidiaries, are expected to drive a lower expense ratio and higher operating leverage, leading to improving net margins over time.
  
• The company's strong balance sheet, robust capital generation, and ability to recycle seed capital into higher-return strategies enable sustained buybacks and dividend growth, increasing per-share earnings and supporting long-term total shareholder return.

Power Corporation of Canada Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Power Corporation of Canada's revenue will grow by 8.1% annually over the next 3 years.
• Analysts are assuming Power Corporation of Canada's profit margins will remain the same at 7.4% over the next 3 years.
• Analysts expect earnings to reach CA$3.5 billion (and earnings per share of CA$5.54) by about August 2028, up from CA$2.8 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as CA$3.9 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.7x on those 2028 earnings, down from 13.1x today. This future PE is lower than the current PE for the CA Insurance industry at 13.4x.
• Analysts expect the number of shares outstanding to decline by 0.93% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.34%, as per the Simply Wall St company report.

Power Corporation of Canada Future Earnings Per Share Growth

Risks

• Power Corporation's long-term earnings growth is heavily reliant on core subsidiaries Great-West Lifeco and IGM Financial, which make up 83% of gross asset value; any regulatory changes, underperformance, or sector disruption in insurance or wealth management could expose the company to significant earnings volatility and threaten group-wide net income.
  
• Despite rapid growth in strategic investments like Wealthsimple and China AMC, sustained and outsized share price appreciation is predicated on their continuing to gain market share and deliver high flows, but fee compression (such as legislated retail fee reductions in China) or shifting investor preferences could constrict revenue and pressure margins if growth moderates.
  
• Alternative asset platforms (Sagard, Power Sustainable) are still not producing consistently positive fee-related earnings (FRE); ongoing fundraising challenges, the need for greater scale in some higher-margin strategies, and the episodic nature of investment returns mean these businesses are not yet significant reliable contributors to revenue and could remain a net drag on margins if fundraising slows or investments underperform.
  
• The shift toward digital platforms and fintech, while providing upside, also poses significant competitive threats from disruptive, technology-driven competitors and direct-to-consumer finance (e.g., decentralized finance); a failure to innovate as quickly as market leaders could erode Power's operating leverage and reduce its ability to attract younger, tech-savvy clients, thereby restricting future revenue growth and compressing net margins.
  
• Potential increases in regulatory requirements, capital needs, and compliance costs (especially across insurance and wealth management sectors globally) may drive up operating expenses and cap industry profitability, which, combined with the rising frequency and severity of climate-related risks (especially for insurance operations), could create greater earnings volatility and depress long-term net margins.

Valuation

• The analysts have a consensus price target of CA$59.0 for Power Corporation of Canada based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$65.0, and the most bearish reporting a price target of just CA$49.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$47.0 billion, earnings will come to CA$3.5 billion, and it would be trading on a PE ratio of 12.7x, assuming you use a discount rate of 6.3%.
  
• Given the current share price of CA$56.59, the analyst price target of CA$59.0 is 4.1% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.