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  • Writer's pictureIshfaaq Peerally

Genworth Financial - Enact Partial IPO Analysis

Updated: Sep 30, 2021


Genworth Financial Stock Analysis

Catalysts

  • Partial IPO of Enact generated $535 million for Genworth Financial, which they used to repay part of their debts, that is, $296 million of the AXA Promissory notes

  • Still owns 81.6% of Enact, currently valued at $2.89 billion

    • Rising demand for housing

    • Record Low Mortgage rate further increases demand for mortgages and consequently mortgage insurance

    • Asset price inflation - further increase in housing prices

  • Can buyback more debt, and possibly buyback shares and pay dividends


Risks

  • Rising mortgage rates

  • Emerging Housing bubble

  • Rising liabilities of Life Insurance Business

  • Most of the profits come from the US Mortgage Insurance Business

  • Low interest rates


Financial Analysis

  • Revenues of $1.97 billion in 2Q21 vs $1.96 billion in 2Q20

  • Revenues of $8.65 billion in FY20 vs $8.09 billion in FY19

  • Premiums of $4.11 billion in FY20 vs $4.03 billion in FY19

  • Operating income of $194 million in 2Q21 vs operating loss of $23 million in 2Q20

    • US PMI: $135 million in 2Q21 vs operating loss of $5 million in 2Q20

    • US Life Insurance: $71 million in 2Q21 vs $39 operating loss in 2Q20

  • Net income of $240 million in 2Q21 vs net loss of $441 million in 2Q20

  • Net income of $178 million in FY20 vs net income of $343 million in FY19

  • Assets of $100 billion, liabilities of $85.4 billion, and book value of $15.1 billion

  • Investments of $73.0 billion vs $77.9 billion in 4Q20

    • Yield of 4.84%

    • Almost all investment graded


Genworth Financial Stock Analysis

Valuation

  • My personal Biases

    • 5.8% of my portfolio with 5.7% in competitor, Essent Group

    • First invested for arbitrage opportunity and now for the IPO

  • Assumptions

    • FCF of $1.8 Billion a year discounted at 15% till judgment day


Genworth Financial Stock Analysis
  • We will look at exit multiples of book value for 2025 with current BVPS at $28.9

Genworth Financial Stock Analysis

Conclusion

  • No need to complex analysis to see how undervalued the stock is

  • Enact could increase the valuation multiples on it

  • Intrinsic value of $12 Billion with expected returns of 26% per year

Genworth Financial Stock Analysis

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