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Why Genworth Mortgage Insurance Australia Ltd shares are bottoming out

Shares in lenders mortgage insurance player Genworth Mortgage Insurance Australia Ltd (ASX: GMA) have been tracking down for the past year, dropping from $3.13 to $2.31 at the time of writing.

It’s likely a few things have contributed to Genworth’s share price demise in the recent past.

To start with its profits took a huge hit when banks changed their lenders mortgage insurance parameters and capped their loan to valuation ratios so demand for lenders mortgage insurance itself dropped.

Genworth’s policy to pay out 50% to 80% of underlying NPAT as dividends also hasn’t helped them weather any sector storms, with a reduced, but very tasty, dividend tipped for 2018.

A note out of Macquarie last month saw analysts retain their outperform rating for Genworth, placing a $3.50 price target on the stock which some investors may have seen as a short-term buy opportunity, with Macquarie speculating the market is acting like there is a housing market crisis in terms of how its priced the stock, when there is no such volatility expected in the sector at all – although house prices have been flat.

Peer Mortgage Choice Limited (ASX: MOC) hasn’t fared much better over the same period with share prices in the mortgage broking company dropping from $2.28 at this time last year to $1.76 today.

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Motley Fool contributor Carin Pickworth has no position in any of the stocks mentioned. 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 Scott Phillips.

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