Thursday’s Globe and Mail reported on the investor appeal of Genworth MI, one of Canada’s leading insurance operators. The company only started to trade publicly last year and, so far, is performing well. It has very little debt, a solid trading history and a dividend yield that gets close to 4 per cent.
Last year, soon after going public, the Globe and Mail’s ‘Report on Business’ ranked Genworth amongst the top ten newcomers to the equity market in Canada. The full Top 1000 ranking of Canad’’s most profitable publicly traded companies can be viewed here.
Although Genworth MI’s parent company, the US Genworth Financial Inc., had to publicly bolster its capital position last year, commentators say concerns for Genworth MI’s shares are unfounded; while some fear the Canadian housing market’s growth looks a lot like the US’s disastrous ‘housing bubble’ a few years go, value investors remain positive about the opportunities presented by Genworth MI.
Similar reassurances can be found from Bond rating firm DBRS Ltd., who recently dismissed concerns about the similarity between the Canadian and US housing market, arguing that Canada’s domestic mortgage market “is fundamentally conservative”. This conservatism comes from several characteristics within the market, including a lack of tax incentives for individuals to take on excessive amounts of debt. However, the other side of the argument is being voiced by some commentators: that this trust in a stable housing market comes from an impressive lack of defaulted loans over the last few years, which are actually a result of refinancing and low interest rates more than anything else.
Genworth MI has a book value of $23 a share, although Scotia Capital Inc.’s analyst Phil Hardie reckons another $5 per share of after-tax profits can be added to this. In fact, Hardie is one the most optimistic investors vouching for Genworth MI, rating the company as an “outperform” and valuing them at a one year target of $35.
Hardie also believes in the Canadian house market, arguing that home owners are very unlikely to walk away from loans if the going gets tough, because job growth is still firmly on the up.
