Power Corp: a solid conglomerate: well-run conglomerates can provide some protection against market turbulence

Money Digest, April, 2001

Power Corp., (TSE: PWF; Recent price: $34.60) is a holding and management company. It owns 67% of Power Financial, 100% of Gesca Ltee and 4% of CITIC Pacific Limited. Power Group's affiliate Groupe Bruxelles Lambert S.A. proposes to exchange its 30% interest in RTL group for a 25% interest in Bertelsmann, the world's third largest global multimedia company. This is equal to 5% of the net asset value of Power Group.

As a result, Power Corp., will have greater international influence in terms of international media that includes books, newspapers, magazines, television, radio, movies and e-commerce.

If Bertelsmann goes public (which is likely), depending on market conditions, there is a possibility that its market value will increase further.

Although the current focus seems to be on media services, it should be noted that Power Corp. is a diversified conglomerate with substantial interest in financial services. The company holds assets that are of high quality and has little debt.

Another attractive feature of Power Corp. is that, at current levels, it is trading at a discount of over 10% from its net asset value. On the basis of projected NAV, the discount is even higher.

Paul Desmarais, Chairman of the executive committee, owns 31% of the total equity and controls 65% of the voting shares.

Power Corp. relies on its largestsubsidiary, Power Financial, for its earnings. Great West Lifeco and Investors Group account for about 80% of Power Financial's net asset value.

When times are volatile and the economic conditions are uncertain, well-run conglomerates such as Power Corp. can provide relative stability and some protection against turbulence.

Conservative investors may want to include Power Corp. in their portfolio for stability as well as for dividends and possible capital appreciation.

Power Corp.

TSE symbol                       PWF
Recent price                  $34.60
1999 earnings per share        $1.76
2000 earning estimate          $2.25
Annual dividend                $0.80
Dividend yield                  2.3%
Current PE ratio                15.6

52-week high-low $36-$19.60