GMA is in a very unique situation where they are priced lower than their assets, which is very attractive. Their share price is backed 152.2% by tangible assets. With investors being stung in the past by their “dividend trap” should I Buy GMA Shares?
GMA ASX Share Price
In the last six months, GMA’s stock price has retraced -15%. The drop in share price comes after the announcement of GMA regarding its updated contract with CBA. CBA’s business represents approximately 57 percent of Genworth’s Gross Written Premium.
The group has been advised by CBA that it intends to issue a Request for Proposal relating to its Lenders Mortgage Insurance (LMI) requirements following the expiry of the current exclusivity agreement with Genworth on 31 December 2022. The exact details are unclear at this time.
Over the broader year, GMA is up 40.74% and recovering well. This has far exceeded the broader market return of 21.73%.
GMA ASX About
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 ASX Dividend History
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.
To no surprise, dividends were drastically cut through 2020 and 2021.
Following GMA’s Half-yearly results we saw the group announce 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’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 current net yield is 3.3%
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 shares typically announce a dividend with the release of its half-yearly results in August and full-year results in February as seen in their financial calendar. Dividends are typically paid twice a year, in March (Interim Dividend) and August (Final Dividend).
Should I Buy GMA ASX for their Dividend?
We never purchase a company based solely on their dividend as this is often not a reliable metric for overall performance. Not all dividend stocks are solid investments. A massive dividend yield can be a red flag as it may be altered due to a massive fall in share price, poor prospects, or a special one-off dividend. For this reason, it is important to consider the business as a whole.
One high dividend stock that we like is CBA. CBA has a gross yield of around 4.25%, and a strong balance sheet to support this. You can have a read of our CBA dividend report here.
Should I Buy GMA Shares Investor Sentiment
After surveying 76 Investors about their current GMA shares sentiment: BUY-HOLD SELL, as well as their target price over the next 12-months here are the results;
The results from this survey show there seems to be no strong investor sentiment on REA shares. So how much are GMA shares worth? Let’s get into it.
Should I Buy GMA Shares Fundamentals
|Volume 4W Avg||2,283,579|
|NTA per Share||$3.47|
Based on their current share price we can see GMA shares have an overvalued PE of 22.57x, which is still above the current inflated average of 20.8x. A company with a high PE could be seen as overvalued or may have great investor sentiment.
GMA ASX Market Cap:
GMA is a Small-cap company with a total market capitalization of just over $940 Million. This places it as the 321st largest listed ASX company by market cap. Small-cap companies are considered more volatile and risky but do have the potential for above-average growth.
GMA ASX Beta:
GMA currently has a beta of 1.39. Beta is a measure of a stock’s volatility in relation to the overall market. High Beta stocks are said to be riskier but provide higher return potentials, Source: Investopedia.
GMA ASX Earnings, Debt, and NTA per Share:
We can see GMA shares currently have earnings per share of $0.101, this gives it its overvalued PE of 22.57x. Another way of looking at this is that 4.3% of their share price is backed by solid earnings.
GMA has $188 Million in debt. Their debts are well covered by earnings.
Their Net Tangible Assets per share is $3.47, representing a massive 152.2% of the current share price.
GMA’s share price is well backed by assets, With NTA represeting 152.2% of its share price.
GMA ASX Market Liquidity:
Genworth Mortgage Insurance being a small-cap company may pose some risk of market liquidity. There seems to be a healthy number of buyers and sellers, in the current market. We can see the average turnover for the company is 2,283,579 equating to just over $5 million daily.
Should I Buy GMA Shares Financials
In early August, GMA released their Half-Yearly statement which 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.
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.
GMA ASX: Low-Levels of Delinquencies
Performance was 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.
The massive reduction in Net Claims incurred has been a large driving force for GMA’s profitable result for 1H21.
GMA ASX 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.
GMA Income Statement
The results show GMA’s return to profitability with a total comprehensive income of $59,366,000 for the half-year. In comparison, the PCP released a loss of $90 Million. These results are largely due to a reduction in net claims incurred and acquisition costs.
GMA Balance Sheet
GMA has managed to grow its balance sheet with $3,868.0 Million in total assets, up from $3,462.9 Million in the PCP.
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
GMA Cash Flow Statement
We can see no money was paid out for dividends during 1H21.
Should I Buy GMA Shares Technicals
In summary, Expect a short-term rebound towards $2.48. The alternative scenario is that a downside breakout of $2.04 would call for $1.91 and $1.83.
GMA ASX Insider Ownership and Trading
We can see that the general public and Institutions own the majority of GMA. This is a common trend amongst most listed shares. We can see individual insiders only own 0.7%.
With GMA originating as a government entity, a small portion of insider ownership is expected. This is a trend we see across all privatized companies this includes CBA, TLS, TAH, QAN, SYD, SUN, and CSL.
“Since our inception Genworth has taken many forms, evolving from HLIC, a government entity, to GE, one of the world’s most innovative companies, and then to Genworth.”
We generally like companies with large insider ownership. Skin in the game helps ensure the management’s motives are in line with ours. We like small-cap stocks with ~30% insider ownership and a history of owners buying on market.
GMA ASX Shareholder Distribution
|No. of Shareholders||1,504||1,689||774||880||76||4,923|
GMA ASX Insider Trading
We can see there has been a large number of insider transactions in the 2021 calendar year. We can see in August David Foster, who is a director purchased $9,999 worth of shares. Andrea Waters is also a director and purchased $24,800 in March. Finally, also in march Gai McGrath purchased a massive $101,787 in GMA shares.
|10 Aug 21||Buy||$9,999||David Foster||AU$2.34|
|06 Aug 21||Sell||$1,132,768||UBS Asset Management||AU$2.32|
|06 Aug 21||Buy||$2,331,578||UBS Asset Management||AU$2.30|
|05 Aug 21||Sell||$1,449,873||Vinva Investment Management Limited||AU$2.37|
|05 Aug 21||Buy||$3,789,987||Vinva Investment Management Limited||AU$2.31|
|04 Aug 21||Sell||$10,681,337||Yarra Funds Management Limited||AU$2.22|
|04 Aug 21||Buy||$415,281||Yarra Funds Management Limited||AU$2.63|
|26 Mar 21||Sell||$66,073||Yarra Funds Management Limited||AU$2.45|
|26 Mar 21||Buy||$11,572,329||Yarra Funds Management Limited||AU$2.56|
|12 Mar 21||Sell||$11,352,001||Perpetual Limited||AU$2.58|
|09 Mar 21||Buy||$24,800||Andrea Waters||AU$2.48|
|03 Mar 21||Sell||$2,679,988||Goldman Sachs Group, Investment Banking and Securities Investments||AU$2.46|
|03 Mar 21||Buy||$29,659||Goldman Sachs Group, Investment Banking and Securities Investments||AU$2.42|
|02 Mar 21||Sell||$97,341||Credit Suisse Asset Management (Switzerland)||AU$2.58|
|02 Mar 21||Buy||$101,787||Gai McGrath||AU$2.45|
|01 Mar 21||Buy||$49,999,992||Perpetual Limited||AU$2.28|
|01 Mar 21||Buy||$21,673,698||Australian Ethical Investment Ltd.||AU$2.34|
|26 Feb 21||Buy||$12,164,160||Goldman Sachs Group, Investment Banking and Securities Investments||AU$2.62|
Should I Buy GMA Shares Future Prospects
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.
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.
With the continued recovery we expect to see GMA continuing to perform well.
Future results will be dependent on the economic recovery and linked to the COVID-19 response and continued government support.
- Number of employed people and hours worked in June both above pre-COVID-19 levels
- Various federal and state government stimulus programmes continue.
- 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%.
Should I Buy GMA Shares: Prophet’s Take
GMA ASX: Australia’s leading LMI Provider has seen a strong result on the back of the economic recovery. The group has returned to profitability in 1H21.
We have seen a history of dividend cuts and reductions from GMA, which caught out many yield seeking investors.
GMA does seem slightly expensive in terms of earnings valuation, with a PE of 22.57x. However, they are in a unique situation where they are priced lower than their assets, which is very attractive.
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. At the moment I am in-range on GMA, we haven’t seen a demonstrated ability for them to deliver strong returns on equity or assets.