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  • Writer's pictureIshfaaq Peerally

Genworth Mortgage Business IPO - Enact

🤝 Now that the deal between Genworth Financial $GNW and China Oceanwide has failed, Genworth can focus on the IPO of their US Mortgage Business. The procedures for the IPO have already started and the new company will be called Enact $ACT .

☂️ Genworth Financial used to have 3 𝙗𝙪𝙨𝙞𝙣𝙚𝙨𝙨 𝙨𝙚𝙜𝙢𝙚𝙣𝙩𝙨: Life Insurance, US Mortgage Insurance, and Australian Mortgage Insurance. They recently sold the Australian Mortgage Insurance Business and are having an IPO for the US Mortgage Insurance Business. Therefore, they are going to focus on Life Insurance, creating two new segments: Fixed Annuities and Long-term Care.

💰Genworth Financial is going to raise about $500 million from the IPO of Enact but they intend to sell only about 17% of the company to the public. The proceeds from the IPO will go to the parent company, that is, Genworth Financial. With this IPO, Enact is being valued at about $3.85 billion and since Genworth will own at least 80%, the ownership of Genworth in Enact is worth about $3 billion. The market cap of Genworth today is less than $2 billion. 𝙏𝙝𝙞𝙨 𝙨𝙝𝙤𝙬𝙨 𝙝𝙤𝙬 𝙪𝙣𝙙𝙚𝙧𝙫𝙖𝙡𝙪𝙚𝙙 𝙂𝙚𝙣𝙬𝙤𝙧𝙩𝙝 𝙞𝙨. This IPO is very different from the spinoff of PayPal $PYPL from eBay $EBAY in 2015, where shareholders of eBay got shares of PayPal. In our case, the best way to have exposure to Enact will be through Genworth itself.

🏠Enact is going to have a valuation of about book value but since there are so 𝙢𝙖𝙣𝙮 𝙩𝙖𝙞𝙡𝙬𝙞𝙣𝙙𝙨 𝙤𝙣 𝙈𝙤𝙧𝙩𝙜𝙖𝙜𝙚 𝙄𝙣𝙨𝙪𝙧𝙖𝙣𝙘𝙚 such as record-low mortgage rates, housing boom, we can expect the valuations of Enact to rise, hence improving the position on Genworth Balance sheet.

If we value Genworth post-IPO as a Life insurance business, it has very low valuations compared to competitors such as Metlife $MET or Prudential $PRU . The tangible book value is $14 billion with a market cap of less than $2 billion. Genworth is a deep-value stock.

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