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  • Writer's pictureIshfaaq Peerally

Genworth Acquisition fails - What's next?



🤝 I've been buying Genworth Financial $GNW since September 2020 as an arbitrage opportunity as it was being acquired by China Oceanwide. But 𝙩𝙝𝙚 𝙙𝙚𝙖𝙡 𝙛𝙖𝙞𝙡𝙚𝙙. What should we do next?


🏠 Genworth Financial is one of the six 𝙋𝙧𝙞𝙫𝙖𝙩𝙚 𝙈𝙤𝙧𝙩𝙜𝙖𝙜𝙚 𝙄𝙣𝙨𝙪𝙧𝙖𝙣𝙘𝙚 (PMI) Businesses in the US. US PMI is the most profitable business segment of Genworth Financial but they also have Australian PMI and Life Insurance segments.


📉 Genworth Financial Stock is 𝙙𝙤𝙬𝙣 𝙢𝙤𝙧𝙚 𝙩𝙝𝙖𝙣 𝟵𝟬% from its all time high reached in 2007. The company was massively hit by the burst of the Housing Bubble. But things are getting better as less than 5% of their loans are now precrisis. Another risk with the stock is the low reinsurance of the loans and the rising cost on annuities. But at current valuations, all these risks are taken care of.


🚀 Genworth has a market cap of $1.8 Billion with a tangible book value of $15 billion and an investment portfolio of over $80 billion. The interest income from their investment portfolio itself is bigger than their current market cap.


There are so 𝙢𝙖𝙣𝙮 𝙩𝙖𝙞𝙡𝙬𝙞𝙣𝙙𝙨 on PMI today such as record low mortgage rates, the work from home trend, asset price inflation.


💰 There is also the possibility that they have a spinoff for their PMI. How much would we value this business? Another PMI, Essent Group $ESNT has a market cap of $5.5 Billion and I believe that it is undervalued. The two PMI businesses are about the same size but let's assume that Essent Group is better and we're paying a premium for it. How much should we value the PMI business of GNW? $4 Billion? $3 Billion. Let's be conservative and say $3 billion. We already said that the market cap is $1.8 Billion. If we're willing to pay $3 Billion for the PMI alone, it would mean you can buy a life insurance business with an investment portfolio of $75 billion for -$1.2 billion (YES! it has a negative value). That's how undervalued this stock is, a prime example of a 𝙙𝙚𝙚𝙥 𝙫𝙖𝙡𝙪𝙚 𝙨𝙩𝙤𝙘𝙠.


Watch the full video on YouTube:


Here’s the Full analysis of Genworth Financial:


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