Market Downturn Weighs on Power Corp. of Canada

No-moat Power Corp. of Canada reported a second quarter that reflected markets moving south. Adjusted earnings per share came in at CAD 0.87, down from an elevated CAD 1.51 in the year-ago period. The adjusted earnings of Great-West Life, Power Corp.’s largest holding, were roughly flat as life insurers are benefiting from rising rates. However, weak equity markets weighed on IGM Financial, and the company saw fair value decreases for its alternative investments. We are reducing our fair value estimate for Power Corp. to CAD 44 per share from CAD 46 as we account for a lower fair value estimate for IGM Financial and a markdown on its other investments, partially offset by reducing our forecast for corporate expenses. We also are tweaking our Morningstar Uncertainty Rating to Medium from High to reflect the Medium rating on Power’s two largest holdings, Great-West and IGM Financial.