The clouds hanging over the banking sector in the wake of the liquidity crisis that hit Silicon Valley Bank should not have “material” effects on Power Corporation’s portfolio, anticipates the management of the Desmarais family conglomerate.
The clientele of Silicon Valley Bank, which has come under the control of the US government, is mainly from the world of technology companies. In the last few days, Power Corp. reviewed its various investments in the fintech sector to assess the risk involved. “There’s nothing ‘material’ about the group as a whole,” chief financial officer Gregory Tretiak said in a conference call with financial analysts on Friday.
This does not mean that all the fintechs in the portfolio are not affected by the economic headlines of the last few days. “Sure for some start-ups, it’s disruptive to business,” admits Tretiak. They have to find different sources of short-term credit. »
These companies are not at risk, however, he assures. “We haven’t seen any major disruptions to portfolio companies, either in Canada or in Europe. »
Power Corporation has majority stakes in insurer Great-West, IGM Financial and Wealthsimple. It also has investments in Quebec companies Lion Electric, a manufacturer of electric buses and trucks, and Lumenpulse, a lighting specialist.
Power Corporation announced results below analysts’ expectations, after markets closed the day before.
In his presentation to analysts on Friday, Chairman and CEO Jeffrey Orr said the economic environment was challenging for the financial sector. He pointed out that the Canadian mutual fund industry saw record withdrawals in 2022 amid stock and bond markets posting negative returns. “It was not a year where investor confidence was very high. »
In the fourth quarter, the conglomerate’s net profit was 486 million, compared to 626 million in the same period last year. Adjusted diluted earnings per share were 59 cents, versus $1.
Prior to the earnings release, analysts had expected earnings per share of 98 cents, according to financial data firm Refinitiv.
By subsidiary, analyst Graham Ryding of TD Securities said Great-West Life, IGM Financial and Groupe Bruxelles Lambert performed in line with expectations. “However, this was offset by losses in investment platforms and standalone businesses,” he said in a note.
During the quarter, Power wrote down the value of its asset in Lion Electric by $109 million. The conglomerate, however, believes that the manufacturer of electric buses and trucks is on the right track. Management is pleased with the company’s most recent results.
“That doesn’t mean we lost money, I want to clarify that,” Orr insists. […] We have invested just over 100 million and the value of our stake is around 220 million. We had to take a charge, but the value is significantly higher than the money invested. »
Scotiabank analyst Phil Hardie believes there are no big conclusions to be drawn from the quarterly results while the “volatile” results of stand-alone companies are a source of “noise”.
One of the objectives of Power Corporation, which reorganized its activities in 2020, is to reduce the gap between the value of its net assets and the price of its share. The gap was around 35% in 2015. This gap had fallen to 17% in June, but increased to 24%.
Mr. Orr believes the spread is on a downtrend. This trend is not linear and the reduction of the gap is accompanied by upheavals, he defends.
Mr. Hardie, for his part, believes the gap will close. He believes the valuation is attractive given the widening windfall to net asset value in recent months. “In the meantime, investors are being rewarded with a generous 6% dividend,” the analyst adds.
The stock was down $1.10, or 3.12%, at $34.18 on the Toronto Stock Exchange around noon.
