Buybacks, 9% Dividend Increase And Platforms Will Unlock Capital

Key Takeaways

• Anticipated earnings growth at key subsidiaries and strong cash generation could lead to future earnings stability and increased investor confidence.
  
• Strategic actions like increased dividends, share buybacks, and new partnerships are expected to boost earnings per share and profitability.
  
• Market-related accounting adjustments and earnings volatility can undermine investor confidence, with impairments and fundraising challenges threatening growth and stability.

Catalysts

An international management and holding company, engages in the provision of financial services in North America, Europe, and Asia.

• Power Corporation's stock might be undervalued due to anticipated double-digit earnings growth at Great-West Life and IGM Financial, coupled with strong cash generation that could impact future earnings positively.
  
• The company announced a 9% dividend increase, funded through cash generation, indicating confidence in future revenue streams and potentially leading to an improved perception of earnings stability.
  
• Power Corporation's ongoing buyback activity, which decreased the outstanding share count, contributed $0.70 to the adjusted net asset value (NAV) per share and is expected to significantly boost future earnings per share (EPS).
  
• Developments in alternative asset management platforms, the launch of new products, strategic acquisitions, and partnerships with capital allocators are forward-looking catalysts likely to increase future revenue and profitability.
  
• The strategic focus on further monetization of assets from stand-alone businesses and alternative investment platforms could release substantial capital, further increasing cash flow used for buybacks or reinvestment, positively impacting revenue and net margins.

Power Corporation of Canada Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Power Corporation of Canada's revenue will grow by 29.0% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 7.7% today to 4.4% in 3 years time.
• Analysts expect earnings to reach CA$3.4 billion (and earnings per share of CA$6.14) by about April 2028, up from CA$2.8 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.7x on those 2028 earnings, up from 11.5x today. This future PE is lower than the current PE for the CA Insurance industry at 13.0x.
• Analysts expect the number of shares outstanding to decline by 1.06% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.41%, as per the Simply Wall St company report.

Power Corporation of Canada Future Earnings Per Share Growth

Risks

• The recent definitional change in adjusted net earnings to capture market-related remeasurements could continue to create accounting volatility and may affect the perceived stability of earnings. This volatility could impact investor confidence and ultimately affect the company's stock performance and earnings projections.
  
• GBL's contribution to Power's adjusted net earnings declined due to increased losses from portfolio companies it consolidates, although it was partially offset by fair value gains. This decline in contributions could impact overall earnings and investor perception of Power Corporation's growth potential.
  
• Power Sustainable recorded fee-related losses consistent with the prior year, and the company had to write down its investment in Lion to nil, resulting in a non-cash impairment charge. Continued losses and write-downs could pressure net margins and earnings.
  
• The macroeconomic environment and uncertain business conditions led to a non-cash impairment charge of $87 million at LMPG. Such uncertainties could dampen future earnings potential and affect shareholder returns.
  
• The alternative investment platforms faced headwinds in fundraising, which can hinder future growth prospects and revenue generation. Insufficient capital raising could impact the financial stability and long-term growth trajectory of Power Corporation's alternative asset management segment.

Valuation

• The analysts have a consensus price target of CA$53.812 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$62.0, and the most bearish reporting a price target of just CA$44.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$78.1 billion, earnings will come to CA$3.4 billion, and it would be trading on a PE ratio of 11.7x, assuming you use a discount rate of 6.4%.
• Given the current share price of CA$50.22, the analyst price target of CA$53.81 is 6.7% 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.