A third generation of the Desmarais family is preparing to take the helm at one of Canada’s largest family-controlled enterprises, Power Corporation (TSX: POW, OTC: PWCDF).

The current Co-CEOs, brothers Andre and Paul, Jr., took charge 20 years ago from their father, Paul Desmarais, who built the empire over the previous three decades.

The young guns in the next generation are now embedded in the corporate structure, but they are not expected to take over for several years. Nevertheless, new blood and ideas would be welcome, as the share price has been going sideways for the past 12 years.

We are comfortable to remain invested in the valuable but hugely undervalued portfolio of assets while being paid an attractive dividend.

A Valuable Portfolio of Assets

Power Corporation operates as a holding company with major investments in life insurance and wealth management. There are also smaller investments in power generation, communications, utilities and industrial companies. The major holdings are publicly listed entities, making it relatively easy to estimate the company’s asset value.

The graphs indicate the major investments and their contribution to Power Corp.’s net asset value. The main asset is Power Financial, which makes up 89% of Power Corp.’s asset value. Power Financial is itself a holding company, with major assets Great West Life and IGM Financial. In essence, Great West Life and IGM are the main assets, contributing more than 80% of the asset value of Power Corporation.

Based on our estimates, Power Corp. currently trades at a 24% discount to its asset value, while Power Financial trades at a 16% discount. So we calculate that investors in Power Corp. buy the underlying assets on a see-through basis at a discount of 35%.

Gems and Lemons

Power Corp has performed well over time as evidenced by a steadily growing book value per share which averaged 7% per year over the past decade. The return on equity also averaged a very healthy 10.2% over a decade that includes the global financial crisis. As mentioned, the key holdings of Power Corp. are financial services operations held through the listed entity Power Financial (TSX: PWF, OTC: POFNF). The jewel in the crown is the insurance operations held through Great West Life. Here are short summaries of the key operations:

Great West Life (TSX: GWL, OTC: GWLIF) operates life and health insurance and wealth management businesses through London Life, Canada Life, Irish Life, Empower Retirement and Putnam Investments. Operations are in Canada, Europe, Ireland and the U.S. The insurance operations contribute more than 70% of the profits, with a roughly equal split coming from Canada and Europe.

Putnam is a renowned U.S.-based asset manager with $150 billion of assets under management. Despite good investment performance, the business has been struggling as investors have moved away from mutual funds in favor of exchange traded funds (ETFs). Great West bought Putnam in 2003 for $4.6 billion. With a loss in the current financial year and a minuscule profit in 2015, investors will be unimpressed with the current performance.

IGM Financial (TSX: IGM, OTC: IGIFF) operates through two main entities, Investors Group and Mackenzie Investments. While very profitable, the business has also been stagnating in an environment where mutual fund managers struggle with competition from ETFs and pressure on management fees. Profits and assets under management have been stationary over the past three years.

Apart from these key holdings, Power Corp. also holds, directly or indirectly, investments in relatively less important but potentially valuable assets. One such investment is a 10% holding in China Asset Management with assets under management of $148 billion. The latest fair value estimate of this leading Chinese business was $390 million, 25% more than the value estimate at the end of 2015.

Sound Dividend Track Record

Power Corporation has a solid dividend payment track record, with growth of 6% per year over the past 10 years. However, we note that the company held its dividend unchanged between 2009 and 2014 as it rebuilt its balance sheet after the global financial crisis. The balance sheet now carries an investment grade rating from S&P (A) with a stable outlook.

Cheap Valuation

The large discount to asset value and attractive 4.5% dividend yield makes it worthwhile to wait for events that will unlock the hidden value. Perhaps the young guns will eventually pull the trigger to collapse the elaborate corporate structures, helping the buried treasures surface.