The following is an extract from our full report this week:
The Fundamental View
Notwitstanding the attractive 1-year forward P/E multiple (7.9x) and the potential for capital return, we are taking a cautious view on GMA in light of the market seemingly de-rating the stock on the basis that i) The Company’s major lending customers could move to the Westpac model or reduce the % of LMI exposure (thereby further impacting volumes) and ii) There could be a risk to pricing on existing contracts given that one of the major lenders has moved capacity.
Further, we consider that the potential further sell-down of shares by GMA’s US-based parent, Genworth Financial Inc. (NYSE: GNW) represents an overhang on GMA shares and could limit any material re-rating of the stock. At the time of GMA’s ASX listing in May 2014, Genworth Financial sold down its stake to about 66% and has since sold down to a 52% shareholding.
The Charting View
GMA has only been listed for about a year so there is not too much to go off. There appears to be some support around current levels so any dip towards the low $3’s is likely to be met with some support. Only a move above resistance near $3.40 would suggest a possible move into an uptrend. Until then, the stock is still fairly range bound.