2023-05-16 21:33:39
Power reported results below analysts’ expectations in the first quarter. (Photo: The Canadian Press)
Power Corporation does not intend to remain a shareholder of Lion Electric and Lumenpulse indefinitely. The Desmarais family conglomerate is however in no hurry to sell its stake in the two Quebec companies, assures its president and chief executive officer, Jeffrey Orr.
Management at Power, which reorganized its business in 2020, has already signaled that it intends to focus on financial services and no longer wants to own long-term standalone businesses.
The conglomerate, however, wants to give the companies it already owns time to realize their full potential. “We don’t have a gun to our head,” Jeffrey Orr replied during a conference call on Tuesday to discuss first-quarter results.
The manager assures that the conglomerate will give the two companies the necessary time to realize their potential. “We made commitments to their managers and shareholders when our strategy was different. We will honor that commitment and do things in a sensible, non-rushed way.”
Power also made an additional investment of US$25 million in electric bus and truck maker Lion in December because the company needed capital, cited Jeffrey Orr as an example.
“We saw the IPO (spring 2021) as a first step to monetize our investment, then the capital market closed to everything electric vehicle. It’s a good company. We didn’t want to abandon her when she had an attractive future.”
The action of Lion has lost nearly 88% of its value since its first steps on the stock market. The management of the company, which is making significant investment expenditures in an American factory and a factory in Mirabel, suggests a possible profitability around 2024 following this investment phase.
At nearly $227 million, the value of the 34.5% stake in Lion Electric is still more than double what Power has invested in the company since 2017.
Power is also exercising its patience with the lighting specialist Lumenpulse, which it had privatized in 2017. Management wanted to bring the company back to the stock market in 2021, but gave up because the context was unfavorable. “We want to monetize our stake, but we don’t want to leave money on the table and it wasn’t the right time.”
In the financial sector, Power notably holds majority stakes in the insurer Great-West, IGM Financial and Wealthsimple.
Disappointing results
Power announced results below analysts’ expectations in the first quarter, while its subsidiaries Sagard and Power Sustainable lost $88 million.
For the group as a whole, net earnings reached $313 million, compared to $862 million for the same period last year. Diluted adjusted earnings per share reached 77 cents. Prior to the earnings release, analysts had expected earnings per share of 93 cents, according to RBC Capital Markets.
The gap with forecasts does not worry analyst Phil Hardie of Scotiabank. “This is largely due to investments in alternative assets. They tend to be volatile: they alternate between gains and losses, which is a source of “accounting noise”.
“By simplifying” its structure, 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 has since risen to 26%.
RBC Capital Markets analyst Geoffrey Kwan believes the “windfall” represents an opportunity for investors as the dividend yield approaches 6%. “We believe the stock is attractive to income-seeking investors who have a long-term horizon. They might benefit from significant stock appreciation as we believe Power will continue to simplify its structure to re-emerge its intrinsic value.”
Power shares lost 90 cents, or 2.48%, to $35.34 on the Toronto Stock Exchange in the followingnoon.
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