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  • Writer's pictureIshfaaq Peerally

Genworth Acquisition fails - What's next?

๐Ÿค I've been buying Genworth Financial $GNW since September 2020 as an arbitrage opportunity as it was being acquired by China Oceanwide. But ๐™ฉ๐™๐™š ๐™™๐™š๐™–๐™ก ๐™›๐™–๐™ž๐™ก๐™š๐™™. What should we do next?

๐Ÿ  Genworth Financial is one of the six ๐™‹๐™ง๐™ž๐™ซ๐™–๐™ฉ๐™š ๐™ˆ๐™ค๐™ง๐™ฉ๐™œ๐™–๐™œ๐™š ๐™„๐™ฃ๐™จ๐™ช๐™ง๐™–๐™ฃ๐™˜๐™š (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.

๐Ÿ“‰ Genworth Financial Stock is ๐™™๐™ค๐™ฌ๐™ฃ ๐™ข๐™ค๐™ง๐™š ๐™ฉ๐™๐™–๐™ฃ ๐Ÿต๐Ÿฌ% 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.

๐Ÿš€ 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 ๐™ข๐™–๐™ฃ๐™ฎ ๐™ฉ๐™–๐™ž๐™ก๐™ฌ๐™ž๐™ฃ๐™™๐™จ on PMI today such as record low mortgage rates, the work from home trend, asset price inflation.

๐Ÿ’ฐ 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 ๐™™๐™š๐™š๐™ฅ ๐™ซ๐™–๐™ก๐™ช๐™š ๐™จ๐™ฉ๐™ค๐™˜๐™ .

Watch the full video on YouTube:

Hereโ€™s the Full analysis of Genworth Financial:

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