Friday, February 8, 2019

Investing using fundamentals - POW

Let’s continue our ‘Time value of Money’ evaluation. This post is about Power Corporation of Canada.  Power Corp is a ‘conglomerate’ that holds investments in several financial institutions such as Europe’s Pargesa. Power Corp holds these interests through its subsidiary Power Financial. Great West Life is a major Canadian insurance company, also controlled by Power Financial.  Power Corp (and Financial) are basically owners of European finance, Canadian insurance and Canadian Wealth management.  Over recent years their performance has faltered due to weakness in Europe and the underperformance of Canadian insurance companies. Furthermore, its investments in wealth-management is heavily geared towards mutual funds that investors are increasingly replacing with low cost exchange traded funds. 

Figure 1 Power Corporation of Canada  fundamentals. DCF means discounted cash flow method. Click the image for a better quality view.
Over the past 6 years Power Corp’s earnings have fluctuated greatly and are basically flat. Yet its dividend yield (5.76%) is much higher than that of most Canadian company’s while its pay-out ratio is a modest 55%. For income investors the dividend is great but appreciation won’t improve until Europe improves and Power Corp’s reliance on antiquated mutual funds has been changed. The ambivalent quality of its earnings and its mediocre management performance has made shares invested in this company basically ‘dead money’ were it not for the dividends. Especially on an after-tax basis, investing in Power Corp is a lot more attractive than investing in GICs, but yet there remains the risks of investing in stocks rather than the nominal stable prizing of GICs.

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