Booth-Laird Investment Partnership’s analysis on Genworth.
[klarman]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.
