Portfolio spotlight: Genworth MI Canada

Genworth MI Canada is the largest private residential mortgage insurer in Canada (second largest overall after the Canadian Mortgage and Housing Corporation). The company traces its roots back to 1995, when General Electric Capital, GE’s major financial arm, bought certain assets and hired key employees in Canada. A number of GE Capital’s insurance businesses were brought under the same umbrella and became Genworth Financial, a US-based firm which was spun out of GE in 2004 and is listed on the New York Stock Exchange. In 2009, Genworth Financial held an Initial Public Offering (IPO) for the Canadian parts of the business on the Toronto Stock Exchange, henceforth named Genworth MI Canada which is still majority owned by the US parent company. Genworth MI Canada works with lenders, such as the large Canadian banks, to insure mortgages that originate from these firms. When a lender is in the process of providing a mortgage to buy a home, it may submit a bid to companies like Genworth to provide insurance on the mortgage. Genworth operates in all Canadian provinces and territories. Its earnings per share have improved to $4.54 CAD in 2016 from $4.22 CAD in 2015. Insurance premiums declined 20% in the last quarter of 2016 compared to the same quarter in the previous year and the company expects further declines as steps taken by the Canadian federal government and regulators to cool off the housing market continue to take effect. Genworth intends to compensate by increasing the quality of its portfolio and insurance standards.

Genworth passed the “high quality” screen for financial companies on February 16, 2016. It traded at $24 CAD per share, less than 2/3 of book value, and it notched a of 5 out of 6 on my fundamental score for financial companies fundamental score. Genworth has been very profitable, averaging a Return on Assets (ROA) of 6.75% over the last 7 years. It remains a very bright spot in its parent company’s otherwise troubled operations. Genworth MI Canada is now trading at around $41 CAD, or over 60% not counting dividends since it was first recommended.