Power Corp. chairman and co-chief executive Paul Desmarais Jr. speaks during the International Economic Forum of the Americas (IEFA) in Montreal in June, 2017.Christinne Muschi
Power Corp. of Canada came under some investor pressure to rev its engine at the end of 2017, and there are some emerging signs that the Desmarais-family-controlled conglomerate has bolder plans for 2018.
Power has long valued stability and healthy dividend payments over chasing growth, but the company's share price has been little changed over the last decade and is now hovering around the same place that it started 2017. And the Desmarais clan, whose trust controls a global portfolio of public and private businesses through their 59-per-cent voting stake in Power Corp., have never had an open-door policy when it comes to their vision – there's no public quarterly calls with analysts to shed any light on their plans.
So, despite some recent efforts to better communicate with value-hungry investors, the odds are low that a clearer picture of Power's strategy will form when it releases its fourth-quarter financial results on Friday, March 23. But some of the company's moves in the first few months of the year give an indication as to where it is going.
One of Power's goals is to use the Desmarais family's relationships and wide networks to create new investment opportunities. The company took a step forward on this in January with plans to launch a new fund in the increasingly popular asset class of private debt. Power's investment platform Sagard Holdings said it would raise at least US$500-million for Sagard Credit Partners LP, and the fund had already secured more than half that amount from its own capital and large institutional backers.
And last month, Power made another $65-million investment in online portfolio manager Wealthsimple that brought its total investment up to $165-million.
"Power Corp. is cognizant of the emerging issues and challenges in the financial services industry presented by the low-interest-rate environment, increasing regulatory requirements, disruptive technological forces and higher customer expectations," ratings agency DBRS Ltd. wrote in a recent report. "To counter these emerging risks, the company is investing broadly in digital capabilities throughout its operating subsidiaries to enable them to modernize and adapt to the changing environment."
Both of these initiatives have been spearheaded by Paul Desmarais III, senior vice-president of Power Corp., who has been taking on a more public role in the business with a focus on fintech and other opportunities. Some leadership uncertainty at Power was also quelled in January when André Desmarais fully resumed his duties as deputy chairman and co-chief executive alongside brother Paul Desmarais Jr. He had been on medical leave from daily activities since last April.
But even with some fresh ideas and new investments – which add to some other holdings in Europe and China, green-energy businesses and media assets – the meat and potatoes of Power's profits still ultimately come from its steady diet of financial services.
Here, there's somewhat more clarity since Power controls Power Financial, which in turn holds majority stakes in two publicly traded Canadian financial staples: Great-West Lifeco Inc. and its subsidiary life insurers, and IGM Financial Inc., the asset-management and mutual-fund giant. It was a bumpy end to the year for both of these companies.
Overall, the value of all of Power's operating businesses and investments adds up to be greater than its stock market capitalization of about $14-billion. The shortfall is called the holding company discount, and there is some debate as to whether Power Corp. or Power Financial has more opportunity to narrow that gap.
Ahead of their earnings, Barclays analyst John Aiken wrote that Power Financial could offer more potential for gains because it is trading at a larger discount compared to its long-term average, calling it "a compelling opportunity for investors."
On the other hand, Tom MacKinnon, analyst with BMO Nesbitt Burns, says Power Corp. may be in the better position to get its discount closer to its long-term average – in part because of the potential boost from outside the Great-West and IGM universe. "Income from investments, which can be volatile from quarter to quarter, has provided attractive gains in recent years," he said of Power Corp.