Booth-Laird Investment Partnership’s analysis on Genworth.

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About Booth-Laird Investment Partnership

  • Approach to investing:
    • Out-of-favor stocks that are mispriced due to uncertainty or fear, misunderstanding or obscurity
    • Conduct significant due diligence to overcome those hurdles
    • Invest only at a deep discount to intrinsic value
    • Limited to 15 to 20 best ideas

Genworth - Profile

  • Genworth is a hybrid Mortgage Insurance, Life Insurance, and Long-Term Care (LTC) Insurance company
  • Spun-off from GE in 2004
  • Largest mortgage insurance company outside the U.S.
  • Pioneer in LTC insurance decades ago
  • $3.7B market cap

HIG Redux–2012 revisited

  • Unholy combination of P&C Insurance and Life Insurance
  • Issues in life insurance overshadowing strong p&c insurance
  • Beaten down to a low fraction of net book value
  • New management after severe issues from credit crisis
  • Plans to eventually split the p&c and life insurance businesses
  • Complexity that requires research, understanding, and patience
  • Described Hartford Group (HIG) 3 years ago and GNW today

How did HIG work out

  • Presented long thesis for Hartford Group (HIG) in July 2012
  • Stock was selling for 35% of NBV at ~$16/share
  • We felt it was trading for lower than a worst case scenario
  • Conservative upside was 60% of NBV in original analysis
  • Ultimately sold in July 2014 for $39 at 90% of NBV
    • 143% gain in 2 years

Asset Play Opportunity

  • Selling for ~25% of net book value
  • Down 60% from 52-week high due to long-term care reserve issues
  • Probability of current management destroying 75% of net book value very low
  • Probability of net book value being overstated 400% very low
  • Risks misunderstood by the market due to complex accounting and new material weakness in controls
  • Substantial upside using three different valuation approaches

Background

  • Oldest predecessor founded 1871
  • GE Capital accumulated a number of disparate insurance companies
  • Spun off from GE in largest IPO of 2004
  • As a major U.S. and global mortgage insurer, severely hurt by the credit crisis
  • New management and majority of directors since crisis
  • Mortgage insurance past darkest hour, steadily improving
  • Late 2014, long-term care ins. reserve issues came to light
  • Review of reserves led to steep increase early 2015
  • Credit ratings reduced one notch as a result

Genworth

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