Power Corporation of Canada: A Contrarian Gem in Q1 2025 Earnings

Power Corporation of Canada (TSX: POW) has long been a bastion of stability in North America’s investment landscape. Its Q1 2025 earnings report, however, reveals far more than mere resilience—it signals a compelling opportunity for investors to capitalize on undervaluation and dividend strength. Beneath the surface of adjusted metrics and strategic moves lies a company primed to outperform, even as markets grapple with economic uncertainty.

Earnings Resilience: Adjusted Net Earnings Signal Underlying Strength

While Power’s reported net earnings dipped 9% year-over-year to $689 million due to market volatility at Great-West Lifeco, its adjusted net earnings surged 11% to $787 million ($1.22 per share). This non-IFRS metric strips out one-off impacts like assumption changes and market swings, revealing the true health of its core businesses.

The star performers were clear:
- Great-West Lifeco contributed $703 million, up 6% on strong retirement and wealth management growth.
- IGM Financial hit $149 million, driven by record $275 billion in assets under management.
- Even Sagard and Power Sustainable improved, with Sagard’s earnings rising to $37 million from $5 million in Q1 2024.

Undervaluation: A 20.6% Discount to NAV Offers Margin of Safety

Power’s net asset value (NAV) per share rose to $68.99, a 14% jump from December 2024. Yet its stock trades at just $50.49, a 20.6% discount to NAV—below its historical average of 24%. This gap is a red flag for undervaluation.

The NAV’s strength stems from:
- 84% of assets tied to high-quality subsidiaries: Great-West (71.4% of gross assets), IGM (13%), and Sagard/Power Sustainable (6%).
- Strong cash reserves: $1.4 billion, with $1.0 billion earmarked for buybacks or dividends.

Dividend Sustainability: 9% Increase Amid Volatility

Power raised its quarterly dividend by 9% to 61.25¢ per share, marking the third consecutive year of increases. Annualized, this yields 8.1% at current prices—a compelling income play even as broader markets wobble.

Crucially, the dividend is sustainable:
- Subsidiary support: Great-West and IGM’s dividend yields (4.8% and 5.1%) underpin the parent’s payout.
- Capital discipline: $135 million in Q1 buybacks reduced shares by 0.5%, boosting per-share metrics.

Strategic Diversification: A Portfolio Built for Turbulence

Power’s diversified portfolio—spanning insurance (Great-West), wealth management (IGM), private equity (Sagard), and sustainable infrastructure (Power Sustainable)—is its secret weapon. These sectors are either recession-resistant or poised for growth in a carbon-conscious economy.

• Sagard’s expansion: Its partnership with BEX Capital in private equity secondaries opens new revenue streams.
• Power Sustainable’s Decarbonization fund: Secured $450 million in commitments, targeting high-growth energy sectors.

Risks? Yes—but Mitigated by Management’s Track Record

• Market volatility: Great-West’s exposure to interest rates could pressure profits.
• Discount to NAV: Narrowing depends on investor sentiment.

Yet Power’s 53-year dividend history, $1.4 billion in liquidity, and management’s focus on capital efficiency (e.g., targeting 19%+ ROE at Great-West) suggest these risks are manageable.

Conclusion: Buy Now—The Contrarian Play

Power Corporation’s Q1 results underscore a story of overlooked value. Its adjusted metrics, diversified portfolio, and shareholder-friendly policies position it to thrive in any market. At a 20.6% discount to NAV and an 8.1% yield, this is a rare chance to buy a blue-chip name at a deep discount.

Investors should act swiftly: as markets reassess Power’s NAV-driven potential and dividend reliability, this discount will likely narrow—leaving latecomers to chase returns.

Recommendation: Buy POW for income and capital appreciation. Set a price target of $70+ (closer to NAV) within 12–18 months.

Note: Past performance does not guarantee future results. Consult your financial advisor before making investment decisions.