Genworth Mortgage Insurance Australia profit falls in half on tight credit conditions

This morning lenders’ mortgage insurance business Genworth Mortgage Insurance Australia (ASX: GMA) revealed that profits for the calendar year 2018 were down 49% for the year to date on a reported basis and 54.1% on an underlying basis.

Chief executive, Georgette Nicholas, said, “Our 3Q 18 result reflects the continued trends of softening cure rates from a moderating housing market, tightening credit standards and increases in mortgage interest rates. This has resulted in a more subdued seasonal uplift than has historically been experienced by our business.”

Genworth’s share price is down 21% over the past year as slowing housing activity takes its toll on the business.

The group also flagged for investors to expect a total decline in net earned premium of 25% to 30% over the full calendar year, which the insurer blamed on tougher market conditions and the impact of a 2017 “Earnings Curve Review”.

Over the first half of the year, the group was able to pay a fully franked interim dividend of 8 cents per share and a special fully franked dividend of 4 cents per share taking the total payout to 12 cents per share.

If the group just maintains a final dividend of 8 cents per share it would be on a yield close to 9% plus the tax effective benefits of franking credit.

However, investors should be warned that an excessively high yield is commonly a sign that the market expects a dividend cut. And dividend cuts often lead to big share price falls.

Elsewhere among housing-market related stocks today Australia and New Zealand Banking Group (ASX: ANZ) revealed that its full-year cash profit dropped 5% to $6.48 billion on a continuing operations basis. Return on equity also dropped 70 basis points to 11%, although total dividends were maintained at $1.60 per share.

ANZ’s CEO noted how it faced the twin problems of “housing growth slowing” and “borrowing capacity reducing” in an ominous statement that suggests upcoming results from National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) are unlikely to be much better.

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