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Genworth Mortgage Insurance Australia beats guidance – Should you buy?

Credit: Thomas Hawk

Shares in S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) constituent Genworth Mortgage Insurance Australia (ASX: GMA) have fallen 1.6% in early trade on Friday after the provider of Lenders Mortgage Insurance (LMI) reported performance metrics which were ahead of guidance.

Here are the key points from the full year results release:

  • Net earned premium increased 5.4% to $446 million
  • Full year loss ratio improved 5% to 19%
  • Underlying net profit after tax declined 5.3% to $264.7 million
  • A fully franked final dividend of 14 cents per share has been declared
  • A fully franked special dividend of 5.3 cents per share has also been declared as part of capital management initiatives
  • Both dividends will be payable on March 4

Management provided the following guidance metrics for 2016:

  • Net earned premium expected to decline by as much as 5%
  • Full year loss ratio expected to be between 25% and 35%
  • Ordinary dividend pay-out ratio in the range of 50% to 80%

Should you buy?

Genworth listed on the ASX in May 2014 at an initial public offering price of $2.65. Since then the stock price has risen to a high of $4.38 about one year ago, however today the stock is trading around the $2.50 mark.

While Genworth holds a commanding position within the domestic LMI market, the dual headwinds of a slowing property market and a tightening of lending standards makes the outlook for Genworth somewhat muted.

Despite this situation, arguably Genworth’s muted outlook is more than fully reflected in the current share price and just like its peer QBE Insurance Group Ltd (ASX: QBE) it wouldn’t be surprising to see some value investors taking a close look at the company at these levels.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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