GMA Earnings Report

On the 4th of August Genworth Mortgage Insurance ASX: GMA released their Half Yearly Results. The leading Australian provider of lender’s mortgage insurance has seen profits return. Their share price Jumps 7.5%, What’s in store for GMA now?

GMA Earnings Report

GMA: The Leading LMI Provider

GMA may be known to some investors as a “Dividend Stock” after we saw its retrospective yield jump to over 15% last year. This was a short-lived “dividend trap” as we saw the share price collapse by 70% during the COVID recession. This caused an artificially inflated dividend yield that was never delivered.

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To no surprise, dividends were drastically cut through 2020 and 2021.

Genworth is a leading provider of Lenders Mortgage Insurance (LMI) in Australia. They also provide tailored risk and capital management solutions for lender customers in the Australian residential mortgage market that complement our traditional LMI product offering.

GMA Earnings Report: Share Price

Following their strong earnings report, GMA shares finished up the day with a spike of 7.55%. Over the broader year, GMA is up 40.74% and recovering well. This has far exceeded the broader market return of 21.73%.

Although investors are still down 45% from the Pre-COVID peaks.

GMA Earnings Report: 1H21 Results

GMA has Highlighted:

  • Underwriting result of $88m
  • Statutory NPAT of $59m (includes $23m of pre-tax mark to market losses)
  • Underlying NPAT of $76m.
  • New insurance written increased 14.7% to $15.5b
  • Gross written premium increased 21.1% to $290m
  • Net earned premium increased 13.3% to $171m.

Although the group saw revenues drop 12.3% from the PCP, they released a profit of $59 attributable to shareholders. Compared to 1H20 the group realized a loss of $90 Million.

GMA Earnings Report

The group also has Net tangible assets per security of $3.47 on their balance sheet, up 10 cents from the PCP. At GMA’s current share price of $2.28, we can see they are in a unique situation where they are priced lower than their assets.

At NTA/Share of $3.47 and a Share Price of $2.28, GMA price is backed 152% by tangible assets

With the group continuing to grow assets and realizing a profit the current discount of assets alone makes the share price seem attractive.

Quick Fundamentals

Market Capitalization$940,532,340
PE22.5x
ROA1.17%
ROE2.93%
NTA/Share$3.47

GMA 1H21 Dividend

GMA announced an unfranked interim dividend of 5 cents. At the current share price, this represents a yield of 2.2%. The Ex-Dividend date is 17/08/2021 with a payment date of 31/08/2021.

GMA Earnings Report

GMA’s Franking account balance is currently in a deficit of $2.8 million as of 31 December 2020 post-settlement of tax balances. Hence the reason for an unfranked dividend. We will likely see unfranked/partially franked dividends for the remainder of 2021 and continuing into 2022.

GMA’s dividend history has been sporadic with a decline seen in payments since 2015. In 2019 the group had a special dividend which boosted their yield. This created a “Dividend Trap” for many prospective shareholders as we saw the share price fall, created a very lucrative retrospective yield.

GMA Earnings Report

A Strengthening Economy 1H21

The large reason for GMA’s strong results has been the fast recovery of the Australian economy, largely thanks to government initiatives.

Over the period we have seen a generally improving economy. We can see a strong rebound in spending. We also see a complete ‘V-Shaped’ recovery in GDP.

GMA Earnings Report

With GMA being a Lenders Mortgage Insurance provider their results are highly dependant on the Australian economy. Over the first half, we also saw housing market appreciation and low-interest rates.

Performance was also supported by operational initiatives implemented last year in response to the new operating environment created by COVID-19.

GMA realized low levels of reported delinquencies, and the ongoing moratoriums on owner-occupied foreclosures, have led to lower than usual paid claims.

GMA Earnings Report

The massive reduction in Net Claims incurred has been a large driving force for GMA’s profitable result for 1H21.

GMA Earnings Report

GMA 1H21 Growing Results

GMA has continued a strong underwriting of new insurance. With $15.5 Billion underwritten for 1H21. We can see their net earned premiums are also showing strong results and growth.

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GMA Strong Balance Sheet 1H21

GMA has managed to grow its balance sheet with 3,868.0 Million in total assets, up from 3,462.9 Million the PCP.

GMA Earnings Report

The group did also incur more liabilities $2.421 Billion compared to $2.057 Billion. Mostly due to unearned premiums and outstanding claims.

Overall Net Assets are $1.447 Billion, representing an increase of 3% from the PCP

What Does GMA’s 1H21 Results Mean For Investors?

One of the main takeaways from GMA’s report was the speedy recovery of the overall Australian economy. With the continued recovery we expect to see GMA continuing to perform well.

These results have seen the return of profits for GMA. Future results will be dependent on the economic recovery and linked to the COVID-19 response and continued government support.

Unemployment

  • Number of employed people and hours worked in June both above pre-COVID-19 levels
  • Various federal and state government stimulus programmes continue.

Dwelling Values

  • National dwelling values 12.4% above the previous peak achieved in April 2020
  • All geographies up over the quarter and prior year. Regional growth strong.

Gross Domestic Product

  • GDP and GDP per capita up 1.1% and 0.8% respectively for the year to 31 March 2021
  • The household saving ratio of 11.6% remains well above the 1Q20 savings ratio of 7.9%.

GMA Earnings Report: Prophet’s Take

GMA: Australia’s leading LMI Provider has seen a strong result on the back of the economic recovery. The group has returned to profitability and announced a dividend of 5 cents, yielding 2%.

GMA is well-capitalized and has continued to grow its balance sheet. Future results will be dependant on the continued recovery from the COVID-19 pandemic.

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