Genworth share price on watch after reporting lower half-year profit

The Genworth Mortgage Insurance Australia Ltd (ASX: GMA) share price could trade heavily this morning after reporting a lower underlying profit in its half-year results.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Genworth Mortgage Insurance Australia (ASX: GMA) share price could trade heavily this morning after reporting a lower underlying profit in its half-year results.

What were the highlights from Genworth's half-year results?

In its half-year earnings for 1H 2019, Genworth reported a 20.7% year-on-year (YoY) rise in New Insurance Written (NIW) to $12.48 billion, but Gross Written Premium (GWP) plummeted 31.0% lower to $184.1 million.

The higher NIW result was largely due to growth in Genworth's traditional lender's mortgage insurance (LMI) inflow and bulk business over the past 12 months, while the higher GWP in last year's result included a bespoke transaction written through Genworth's Bermudian insurance entity.

Genworth's net earned premium climbed 3% higher over the year to $147.6 million, while the company's underlying net profits after tax (NPAT) fell 14.3%, despite a 110.3% increase in its statutory profit result.

The statutory result included an after-tax unrealised mark-to-market gain of $45.4 million on its investment portfolio, compared to an unrealised after-tax loss of $8.4 million in 1H 2018.

Other highlights from the Genworth result include:

  • First-half earnings in line with full-year guidance (NEP up 3%; loss ratio 54.1%) with the higher loss ratio reflecting the historical seasonal uptick in delinquencies experienced in the first half of the year.
  • Regulatory solvency ratio 2.08 times the prescribed capital amount (on a level 2 basis) as at 30 June 2019
  • Strong capital position with net tangible assets (NTA) of $4.14 per share as at 30 June 2019 (versus $3.94 per share as at 31 December 2018).
  • Fully franked interim ordinary dividend of 9 cents per share and unfranked special dividend of 21.9 cents per share
  • Strategic initiatives progressing well with Genworth announcing a new regular (monthly) premium LMI as an alternative option to its upfront singe premium LMI offering.

What does this all mean for the Genworth share price?

The obvious downside for investors is the lower underlying profit numbers, while the loss ratio remains at the upper end of management's 45% to 55% target range.

Genworth management did note that economic conditions in the second half of the year, including volatility in global investment markets, could be a big factor in the company's full-year result.

Positively, despite a recent credit rating downgrade from Standard & Poor's (S&P), the Genworth business remains well-capitalised and well above both internal and regulatory requirements.

Despite boasting a strong market share, Genworth's book does remain concentrated with its top 3 customers in terms of GWP accounting for approximately 71% in 1H19; however, this has fallen from 82% a year ago.

All in all, the Genworth result doesn't look too bad on the surface despite the number of one-off charges in both 1H 2018 and 1H 2019 making the underlying harder to evaluate, and I'd expect the Genworth share price to push higher in early trade.

Motley Fool contributor Kenneth Hall 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.

More on Share Market News

A happy young couple lie on a wooden deck using a skateboard for a pillow.
Share Gainers

These were the best-performing ASX 200 shares in March

These shares made their shareholders smile in March thanks to some very big gains.

Read more »

Businessman using a digital tablet with a graphical chart, symbolising the stock market.
Opinions

2 ASX shares I have been buying in 2024!

I’m a believer in the long-term outlook of these stocks.

Read more »

Stock market chart in green with a rising arrow symbolising a rising share price.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a massive day for the ASX 200, with a new all-time high recorded.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Technology Shares

This ASX tech stock rocketed 60% in March! Can it keep on delivering?

After soaring in March, the ASX tech stock is now up 169% since this time last year.

Read more »

Broker Notes

Brokers name 3 ASX shares to buy now

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why Burgundy Diamond Mines, Clarity Pharmaceuticals, EML, and Zip are sinking today

These ASX shares are ending the week in the red. But why?

Read more »

A young women pumps her fists in excitement after seeing some good news on her laptop.
Share Gainers

Why Mesoblast, Newmont, Pilbara Minerals, and Platinum shares are jumping

These ASX shares are ending the week strongly. But why?

Read more »

a young boy dressed up in a business suit and tie has a cute grin and holds two fingers up.
Opinions

2 of my top ASX 200 shares to consider buying before April

I would happily exchange dollars for these two shares right now.

Read more »