Readers are likely aware of my position in Genworth MI Canada (TSX: MIC) and they reported their second quarter results today. The quarter was relatively boring, with losses on claims slightly lower and investment income slightly lower (due to lower rates). Loss ratio is 32% and expense ratio is 17% (total 49%) for the quarter, which is tracking roughly on-line the previous year. Delinquency rates continue to decline, with total portfolio down to 0.17% (from 0.25% year-previous).
Portfolio is at a 4.2% yield with a 3.5 year duration, approximately 3% in cash, 7% equities and 90% in fixed income (corporate and government).
Nobody said this company will be exciting. It isn’t.
Book value, excluding intangibles, is $26.30/share. With the market value being $16.97 as of today’s closing, even if the company exhibits mediocre performance, it is still likely undervalued. They key risk continues to be some sort of collapse or meltdown in the real estate market. Also, underwriting business will be slowing due to recent changes in the Government of Canada’s policies on mortgage insurance.
Although you stated that the risk of GNW is broader than MIC, do not you think that the risk reward proposition of GNW is better? if canadian market tank, MIC is toast. It a possibility with small probability but the more higher probability is a correction in CDN real estate. Then MIC will trade lower and revenue will decile due to less premium may be there wholesale insurance will pick up the slack but they are running to regulators limits.
However GNW is a different story. all signs indicate that US housing is stabilizing so GNW will trade on that regardless what will happen with MIC. They are selling the Australian subsidy and quite possibly that CDN will be next. Their insurance segment is doing well and quite cheap given all the headline risk of the mortgage insurance.
what do you think?
As I stated in my earlier article, GNW appears to be a better risk-reward proposition, but I was uncomfortable with the precision of my research so I left it alone.
MIC’s risk-reward proposition is pretty simple to understand – if the Canadian real estate market tanks, they’re done, but even if they went through a 10-20% price drop, MIC should still do OK. MIC’s market price is implicitly signalling a major collapse in Canadian real estate prices and/or a major spike up in unemployment (which would also drive default rates higher). It is this simplicity which attracted me, and also the reason why the market price is so low – people very bearish on CDN real estate.
Looks like MIC is moving in the right direction. $16.80 to $17 bucks appears to be the basement (at least for now)
The guy that was pressing his asking price down probably got liquidated, probably explains the volume between July 24 to August 3rd. That’s my brief thought. I rarely focus on technical analysis, but this seemed to be rather unusual in terms of how somebody wanted to dump supply over the past few months.
I’ve been reading more reports about how the Vancouver market is experiencing a price correction. This might be a function of foreign (Chinese) interest waning, and the mortgage insurance changes by the feds. Will be interesting to see if it continues.