Genworth Financial: Strong Balance Sheet Offers Opportunity (NYSE: GNW)

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Despite years of naysayers and disbelievers, Genworth (NYSE: GNW) has pretty much become a healthy business, in its own right. Missteps along the way include China Oceanwide merger attempt and $400M+ settlement with AXA Insurance. Genworth’s enterprise value is currently lower than Enact’s market value (LAW) shares he owns and no value is attributed to the life insurance unit (US Life Insurance) which has assets of more than $70 billion and a book value of more than $14 per Genworth share (excluding AOCI). Rising interest rates will have a significant positive impact on Genworth Life, which holds nearly $60 billion in investments. Other legacy issues, such as long-term care, have been resolved, and the holding company currently has no guarantees to LTC subsidiaries.

Currently, we highlight the Junior LIBOR+ ratings of holding company Genworth (GNW) against the improved balance sheet and subsequent ratings upgrades from Moody’s and S&P. GNW has two major independent insurance companies: Genworth Life Insurance and Enact. Genworth Life has total assets of $76 billion and Enact is a publicly traded mortgage insurance company with a market capitalization of over $3 billion. GNW underwent a financial transformation by deleveraging. This led to more than $2 billion in debt reduction from holding companies and upgrades from both rating agencies.

This year, Enact is expected to generate more than $600 million in revenue and pay dividends of more than $200 million. Q4 Conference Call (CEO Tom McInerney):

“We also expect to receive an additional return of capital from Enact in the fourth quarter of 2022 based on Enact’s expectation to return approximately $250 million to its shareholders in 2022 and taking into account our controlling interest of 81.6%, we expect to receive approximately $150 million in additional capital returns to Genworth in addition to quarterly dividend payments from Enact.”

Enact also has a market value of $3.7 billion. Currently, Genworth owns 81.6% or approximately $3 billion of Enact stock. The value of Genworth Life is not so clear. Although Life has improved in recent years, it is not expected to pay dividends to the holding company for the foreseeable future. And although Life has more than $7 billion in GAAP book value, management is unsure of its true value due to legacy issues. We estimate that Life has a low fractional value of its GAAP book value, but the value may be close to $1 billion. We expect this to continue to improve with higher interest income in Life. Although the demise of the company has been repeatedly predicted, Genworth is stronger than ever and has completed its deleveraging and has become a much stronger company.

Bonds of Genworth Holding Company

In August, holding company GNW announced the redemption of the remaining 4.8% Senior Notes. This left the $298 million 6.5% Notes due 2034 and the $598 million Junior Floating Rate Notes due 2066. The Junior Notes pay interest at an annual rate equal to three-month LIBOR plus 2.0025% (current estimate 5.59%). This will increase or decrease with the 3-month LIBOR. Since junior notes trade at a steep discount to par, they have excellent call protection. The Notes should be considered similar to preferred stock due to the fact that Genworth may defer interest payments on the Notes for five years and they are subordinated. If payments are deferred, the notes continue to accrue interest and GNW is prohibited from paying dividends or making share repurchases. Genworth is required to make a reasonable effort to redeem the Notes in 2036 in certain circumstances. We recommend junior bonds because of the current high yield, rising interest rates and call protection. We don’t recommend the 6.5% Notes at this time, although they may be attractive at a higher current yield.

Genworth Data IS. to 9 20 2022 MM

GNW Enterprise Value

$2,915

Enact (ACT) Market Cap

$3,838

% ownership of GNW ACT

81.6

Estimated value of GNW Life

$800

2022 GNW Dividends from Eastern subsidiaries.

$350

Hold Co. Cash 2022 YE Est.

$200

Debt of Hold Co. proforma

$896

Variable Rate Junior Notes

link

Coupon

3 month LIBOR + 2.0025%

Current LIBOR

3.59%

Current interest rate is.

5.59%

Last prize

53.75

Current Yield Estimate

10.35%

Payment frequency

Quarterly

Maturity

2066

Amount issued

$600 million

GNW 2022 EPS is.

$1.22

bond table

Chart of junior floating rate bonds (Finra)

GNW Consolidated finance

share price

$3.92

PROJECTIONS IN MM

2022

2023

2024

income statement

Revenue

$7,832

$7,910

$8,227

Operating result

$1,032

$1,110

$1,327

Net revenue

$629

$712

$872

PES

$1.22

$1.38

$1.69

Revenue increase

0%

1%

4%

EBITDA

$869

$952

$1,112

Interest of Holding Co.

$93

$75

$80

Capitalized expenditure

$15

$18

$20

Consolidated cash flow

$854

$934

$1,092

Stock dividends

$0

$0

$0

Cash flow dividend hedge

N / A

N / A

N / A

Consolidated cash generation

$854

$934

$1,092

Holding Co. dividends received

$350

$300

$250

Revenue increase

0%

1%

4%

Ratings

Consolidated cash flow vs. Equity

42.3%

46.2%

54.1%

EV/EBITDA

3.36

3.06

2.62

P/E ratio

3.21

2.84

2.32

Enterprise value

$2,915

Total debt

$896

Market capitalization

$2,019

$2,019

$2,019

Debt ratios

Hold Co interest coverage.

376%

400%

313%

Debt/EBITDA

N / A

N / A

N / A

Liquidity

Holding Cash 6/30

$228

Borrowing availability is.

$350

Total current assets

N / A

Total current liabilities

N / A

Current ratio

N / A

Debt

Loans

$896

Total

$896

REMARKS:

NA: not applicable. GNW publishes consolidated financial statements. Broxton believes that investors should view the business only from the perspective of the holding company. GNW Holding Company has no warranty or liability to Enact or GNW Life. The holding company may sell shares of Enact to raise cash.

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