Power Corp says it was spared the repercussions of the crisis at Silicon Valley Bank
André Desmarais, Robert Jeffrey Orr and Paul Desmarais Jr. in 2019. (File photo)
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 the portfolio of Power Corporation, anticipates the management of the family conglomerate Desmarais.
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 recent days, Power Corp has reviewed its various investments in the financial technology (fintech) sector to assess the risk involved. There is nothing “material” about it. for 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. For sure, for some start-ups, it's disruptive, admits Mr. Tretiak. They must 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 Europe.
Power Corporation has controlling interests in insurer Great-West, IGM Financial and Whealtsimple. It also has investments in Quebec companies Lion Electric, a manufacturer of electric buses and trucks, and Lumenpulse, a lighting specialist.
Power Corporation unveiled results below analysts' expectations, after the markets closed the day before.
In his presentation to analysts on Friday, Chairman and CEO Jeffrey Orr said the economic environment was difficult for the financial sector. He pointed out that the Canadian mutual fund industry saw record outflows in 2022 amid stock and bond markets posting negative returns. It was not a year when investor confidence was very high.
The conglomerate's fourth quarter net profit was $486 million, compared to 626 million in the same period last year. Adjusted diluted earnings per share were 59 cents, compared to $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 Securities TD Securities, believes that Great-West Life, IGM Financial and Groupe Bruxelles Lambert have produced results similar to forecasts. However, this was offset by losses in investment platforms and standalone businesses, he comments 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. We have invested just over $100 million and the value of our stake is approximately $220 million. We had to take a charge, but the value is significantly higher than the money invested.
—Jeffrey Orr, President and CEO Power Corporation
Scotiabank analyst Phil Hardie believes there are no big conclusions to be drawn from the quarterly results while volatile results from 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 its share price. The gap was around 35% in 2015. This gap fell to 17% in June, but rose to 24%.
Mr. Orr believes the gap is on a downtrend. This trend is not linear and the reduction of the gap is accompanied by a jolt, he defends.
Mr. Hardie, for his part, believes the gap will close. He believes the valuation is attractive considering the widening net asset value windfall 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.