Thursday, May 10, 2012

Power Financial Corp 2

I own this stock (TSX-PWF). I first bought this stock in 2001. I then bought some more in 2004 and 2011. I have made a total return on this stock of 7.65% per year. Dividend return is 4.19% and capital gain is 3.46%. Dividends make up some 54.8% of my returns.

Over the past year there has been no insider trading, no insider selling and no insider buying. The CEO has a lot of options. With his options at 4.2M shares they are currently worth $114M. Paul G. Desmarais has just over 487M shares and owns approximately 66% of this company. He is also a director.

Not surprisingly, because so many shares are held by insiders, institutions hold only 10% of the shares of this company. There are 115 institutions with shares and over the past 3 months they have sold more than they have bought, but their share ownership is down less than 1%.

I get 5 year median low and high Price/Earnings Ratios of 11.90 and 16.04. The current P/E Ratio of 10.51 would suggest a low current stock price. (The 10 year median low P/E Ratio is 11.78, so the stock has not been relatively high over the past 5 years.)

I get a Graham price of $30.61 and the current stock price is 12% lower. The 10 year median difference between the Graham Price and low stock price is the stock price being 1% lower. The 10 year median difference between the Graham price and median and high stock price is the stock price being 15% and 29% higher than the Graham Price. This test shows the current stock price of $26.90 as being relatively low.

The 10 year median Price/Book Value Ratio is 2.36. The current P/B Ratio is 1.65 and is about 30% lower. This shows the current stock price to be relatively low.

The current dividend yield of 5.2% and it is 13% higher than the 5 year median of 4.6%. The 10 year median high dividend yield is just 3.3%. The yields on this stock have been quite high since the latest bear market. Also this company has not increased their dividends since 2008. By this measure the current stock price is relatively low.

When I look at analysts’ recommendations, all I find are Hold recommendations. The 12 month target price is $30.20. This would imply a 17.5% total return over the next 12 months. This company holds a lot of Life Insurance companies. Market downturns affect these sorts of companies and the worry is there will be a meaningful stock market downturn in our near future. See comments in blog3.

A number of analyst mention the current good dividend yield and a number mention good management. One analyst mentioned lack of earnings growth. It is true that earnings are down over the past 5 years, but they have been growing nicely since 2008, they just have not made it back what they were making in 2006 and 2007. 2008 saw a drop in earnings of 36%.

One analyst said that this company was a great way to get exposure to Great-West Life and IGM Financial. One analyst just changed their recommendation from Buy to Hold because Great-West’s first quarterly results for 2012 missed consensus estimate. He thought that both Great West and IGM have a weaker earnings outlook now.

Some people like Power Corp to Power Financial, however, some people always say this. Power Corp is more than just financials and therefore is considered to be less volatile. I also track Power Corp.

I am holding on to the shares I own in this company. It is not that analysts do not like this stock; they just seem unenthused about it currently. My long term expectations for this stock are earning around 4% dividends and 4% capital gains. However, in the past this stock has tended towards 3% dividends and 5% capital gains. These sorts of dividend payers tend to go up with dividend increases and there has not been any lately.

This company is a holding and management company. Its operations provide a range of individual and corporate financial and fiduciary services in North America and Europe. It holds interest in the following companies: Great-West Lifeco, Great-West Life, London Life, Canada Life, Great-West Life & Annuity, Putnam Investments, IGM Financial, Investors Group Mackenzie Financial, and Pargesa Group. Controlling shareholder of Power Corp of Canada is Paul Desmarais. They have 30.1%, but have 64.6% voting control. Its web site is here Power Financial. See my spreadsheet at pwf.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

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