17 May Power Financial
BUY Power Financial (TSX:PWF), $32.33 CDN I am buying more shares of Power Financial this week. I’ve owned PWF and it’s parent, Power Corp (TSX:POW) several times over the years and it’s never really disappointed. The folks that control and operate PWF are skilled operators with a conservative leaning, and a long-term approach to growing net equity. PWF owns controlling stakes in Great-West Financial, Investors Group, McKenzie Financial and a large stake in a diversified conglomerate in Europe, which trickles down to PWF in having economic interests of about 1-3% stakes in names like Addidas, Lafarge, SGS and Pernod Ricard. The math is pretty simple on this one.
At the price I am buying PWF right now, I am technically paying $23.5 billion for the business. For that $23.5 billion, you get 68% of Great-West Life (worth $23 billion, publicly-listed shares), 60% of IGM (Investors Gorup/McKenzie Financial/Putnum, etc) worth $5.5 billion and 25% of Pargesa Holdings (the European conglomerate) worth about $2 billion. That adds up to about $30.5 billion. Deduct from this PWF’s obligations of $700 million in debt and various obligations, $2.5 billion in preferred shares which are ahead of me, plus $800 million in cash, and I am buying net assets of about $28 billion for $23.5 billion (ie, I’m paying $32.33 per share for net assets of about $39.25). Of course, it’s not like PWF is going to sell these assets and return me cash of $39.25 so this is all theoretical, as well, such sales would leave PWF with huge capital gain tax bills wiping out the value I’m buying.
I’m buying PWF because the shares are generally beaten up…despite the value. PWF’s exceptional job of growing equity over the years, Great-West’s very strong insurance presence in Canada and the US, and IGM’s strong wealth management franchise, PWF’s shares are laggards. The company is boring and the businesses are boring. In fact, I’m falling a sleep as I write this. As well, the IGM business is under threat because now people can simply buy ETFs to buy the market and use robots to make decisions (PWF also owns one of the leading purveyors of robo-investing, Wealth Simple) so maybe that $5.5 billion holding is at risk. I guess we’ll see.
In the meantime, I’ll take the value, take the dividend, and wait for interest rates to step up a bit…I think all those insurance assets will start looking a little better as rates normalize. I’m buying shares in PWF which approximate 8% of the portfolio.