From UBS on Genworth:
We continue to believe GMA can return surplus capital, a core feature of our investment thesis. With the low hanging fruit now delivered on this front we’re downgrading to Neutral, recognising that further significant returns could be dependent on no material deterioration in the economic backdrop. We’re into uncharted waters from here – macro-prudential, investment loan repricing, mining related weakness and the extraordinary strength of the housing market have all introduced fresh uncertainties for growth, delinquencies and loss ratios. We believe a larger valuation buffer is required to justify a Buy rating in the current environment.
Deterioration of 2012/13 loan vintages in the key mining states of WA and Qld drove GMA’s delinquency rate up to 40bps at June (from 36 bps at March) and produced a 2Q15 loss ratio of 27.4% (vs UBSe 21.4%). This was the main driver of the earnings shortfall, with 1H15 NEP in line ($225.7m vs UBSe $222.6m) and GWP down 9% on pcp but ~6% ahead of UBSe.
What a ridiculous company. It can’t possibly be allowed to cough up more capital. Blind Freddy can see GMA is tied to a railway track before an oncoming juggernaut yet somehow there is surplus capital to return to shareholders despite a leverage ratio of 115x?
I mean, come on!
