Genworth Financial - Enact Partial IPO 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

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