Genworth Financial - Enact Partial IPO Analysis
Updated: Sep 30, 2021
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
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
We will look at exit multiples of book value for 2025 with current BVPS at $28.9
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
Full analysis and research: https://ishfaaqpeerally.teachable.com/courses/662813/lectures/35240956
