(Montreal) Power Corporation of Canada won’t need to go to the bedside of Wealthsimple, which is “well funded,” any time soon, assures its President and Chief Executive Officer Jeffrey Orr.
Posted at 11:24 am
The Desmarais family conglomerate, which owns 54.5% of the fintech Financial services company, wrote down the value of its investment by 57% as part of its second-quarter results. The investment is valued at 900 million as of June 30, 2022, compared to 2.1 billion at the same time last year.
Wealthsimple is among Canadian tech companies that have had to revise their growth ambitions as consumers return to brick-and-mortar stores and the economic horizon looks uncertain. The Toronto-based company told employees in June that it was laying off 13% of its workforce.
Despite the setback, Mr Orr defended Wealthsimple during a conference call with financial analysts on Monday. “Management has done an incredible job of creating a brand. She has a large customer base. Customers are satisfied and report good experiences. This market segment is the next generation. »
Wealthsimple is currently “well funded” and does not need additional capital in the short term, the leader assures, adding that the question remains open longer term.
For Power Corporation, investing in Wealthsimple was a way to get exposure to fintech companies and “see what would happen.”
Management has yet to determine the company’s role in the long-term conglomerate and is keeping options open.
“It’s not just an asset manager’s bet: we’re in the financial services industry. We wanted to get involved to see what’s in store and gain a foothold in the burgeoning digital sector. Whether we stay long term or not, I think that’s a decision that needs to be made in the future. »
In June, Wealthsimple CEO Michael Katchen wrote to employees that the company was refocusing on its core businesses, like investing and banking services, and on products he said will drive financial innovation, like cryptocurrencies.
The company will reduce investments in other areas such as peer-to-peer payments, tax and trade services, and restructure teams focused on recruiting, marketing, customer success and research.
Results below expectations
Management made the update as Power Corporation reported second-quarter results that fell short of market expectations amid “challenging” economic conditions for the financial industry.
Mr Orr mentioned that stock markets and bond markets fell together. Outflows for Canada’s mutual fund industry hit a record high for a second quarter in at least a decade.
The conglomerate reported net income of 527 million compared to 994 million in the same period last year.
Adjusted diluted earnings per share were $0.87 compared to $1.51 per share a year ago. Prior to the earnings release, analysts had been expecting earnings per share of $0.95, according to financial data firm Refinitiv. “It’s been a tough environment, but results remain solid,” said CFO Gregory Tretiak.
One of the goals of Power Corporation, which reorganized its operations in 2020, is to narrow the gap between the value of its net worth and its stock price. The gap, which was around 35% in 2015, reached 17% in June 2022.
TD Securities analyst Graham Ryding believes the market’s re-rating is justified. “This discount to lower net asset value is justified given the progress made in simplifying business, improving financial reporting, reducing expenses, adding value to certain investments and creating a fast-growing alternative investment platform. »
Power Corporation shares fell 72 cents, or 2.07%, to $33.99 at the Toronto close.