Guardian Capital Group is an alluring value stock, with a problem: There’s no catalyst to unlock its hidden worth.
To see the potential in the Toronto-based firm, consider a back-of-the-envelope calculation performed by Phil Hardie of Scotia Capital in a recent report.
He starts by observing that non-voting class A shares in Guardian, which manages money for institutions such as pension funds, trade for about $9 each. Sum up the value of each individual part of the company, however, and Mr. Hardie arrives at a pre-tax worth of more than double that, or $18.26 a share.
In the investment community, sum-of-the-parts calculations are often regarded as sources of mirth because they’re usually fraught with fudge factors, caveats and assumptions, but breaking down Guardian’s potential sources of value is pretty straightforward.
The company’s easiest-to-value asset is a 5-million-share hoard of Bank of Montreal stock, worth about $280-million at the end of the first quarter. Guardian received the stock more than a decade ago when it sold its mutual fund business to the bank. The BMO stock holding alone works out to $8.20 a share, or nearly the same as the current stock price. Also easy to visualize are the company’s holdings of cash and other marketable securities, worth $104-million or $3.06 a share.