Genworth launches IPO

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From the AFR, Genworth has launched its IPO:

Lead broker Goldman Sachs said the Australian business was worth $1.9 billion to $2.4 billion, or 0.8-to-1-times the company’s book value.

It forecast Genworth to record $235 million net profit after tax in the 2014 financial year, and said the valuation implied an eight-to-10-times on a price-to-earnings basis.

…Goldman Sachs said Genworth had been able to increase prices in four of the past six years, which had driven a significant increase in the return generated by policies written since 2010.

That’s the main argument in favour of the business. It has a lot of pricing power as a duopoly. However, as I’ve said before, this baby is for the wild at heart given it insures the highest risk mortgages in Australian housing. The Australian operations data is available here.

Comments

  1. johnathonbbbrown

    I’d be selling out to if I owned this dodgy company. Could they just be selling just before the biggest property crash in Australia’s history strikes?

  2. Looks to me like a very interesting indirect RE play. Could be worth a look especially if there is adequate liquidity in the put/call options. I can imagine a lot of interest in options of this equity for constructing hedge structures. House owners can do a kinda covered-call and make a little money while small mortgage lenders can effectively short sell this and cover their natural business risk.

  3. sydboy007MEMBER

    Gets 30 foot barge pole to push this one away.

    Suppose it’s like a voluntary bank bailout if things go up / down said creek without a paddle.

    Like pokies and cigs, I’m not into voluntarily increasing my tax bill 🙂

  4. I had to read this bit a few times just to make sure I had read right:

    “0.8-to-1-times the company’s book value”

    Wow! What a business! The top end of the valuation range is equal to book value!

    I’m curious to see how they value their policy liabilities…

  5. mine-otour in a china shop

    If only those LMI stress tests were available to see if this was fair value?