Why I am cautious on Genworth (GMA)

by Michael Gable

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.



Disclaimer: Michael Gable is an Authorised Representative (No. 376892) and Fairmont Equities is a Corporate Authorised Representative (No. 444397) of Novus Capital Limited (AFS Licence No. 238168). The information contained in this report is general information only and is copy write to Fairmont Equities. Fairmont Equities reserves all intellectual property rights. This report should not be interpreted as one that provides personal financial or investment advice. Any examples presented are for illustration purposes only. Past performance is not a reliable indicator of future performance. No person, persons or organisation should invest monies or take action on the reliance of the material contained in this report, but instead should satisfy themselves independently (whether by expert advice or others) of the appropriateness of any such action. Fairmont Equities, it directors and/or officers accept no responsibility for the accuracy, completeness or timeliness of the information contained in the report.

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