Booth-Laird Investment Partnership: Genworth Analysis

0
Booth-Laird Investment Partnership: Genworth Analysis

Booth-Laird Investment Partnership’s analysis on Genworth.

Get The Full Seth Klarman Series in PDF

Get the entire 10-part series on Seth Klarman in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

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

See full PDF below.

Ray Dalio At Robin Hood 2021: The Market Is Not In A Bubble

Fractional Shares Stock PickerAt this year's annual Robin Hood conference, which was held virtually, the founder of the world's largest hedge fund, Ray Dalio, talked about asset bubbles and how investors could detect as well as deal with bubbles in the marketplace. Q1 2021 hedge fund letters, conferences and more Dalio believes that by studying past market cycles Read More


No posts to display