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HLI - Helia Group

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peaceofmind

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10 December 2013
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hi any interest for this coy? Largest IPO of the year at $700m raising

$2.20 to $2.90 a share
approx 6.5 to 8.2 PE ratio
yield 6.7 to 8.9% fully frank

in the midpoint of the range $2.55 - it is 7.35PE and 7.8% fully franked

it is a LMI mortgage insurer - one of two in australia with QBE.
there are lots of risks in the prospectus
on raw numbers, yield and PE ratio attractive if at midpoint of the range.
 
Re: GMA - Genworth Mortgage Insurance Australia IPO

peaceofmind said:
hi any interest for this coy? Largest IPO of the year at $700m raising

$2.20 to $2.90 a share
approx 6.5 to 8.2 PE ratio
yield 6.7 to 8.9% fully frank

in the midpoint of the range $2.55 - it is 7.35PE and 7.8% fully franked

it is a LMI mortgage insurer - one of two in australia with QBE.
there are lots of risks in the prospectus
on raw numbers, yield and PE ratio attractive if at midpoint of the range.
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The issue got fully subscribed with issue price about $2.65. The promoters hold large amount of stock holding and going to be traded from 25 May 2014. Interesting time of listing .
 
Sound said:
Down 18% today, anyone looking to bite?

Kind of decent yield? Thoughts?
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One of the many breakouts I had on watchlist so saw the action and set the order up but froze on the mouse at $3.23 - $3.25 thinking there was further downside, which didn't manifest today. Noticed a big soak up of volume at price $3.30 and large volume there which I could not see on the d.o.m. Still some time left to trade up before the Westpac decision impacts the company. Sentiment ???
 
Wysiwyg said:
One of the many breakouts I had on watchlist so saw the action and set the order up but froze on the mouse at $3.23 - $3.25 thinking there was further downside, which didn't manifest today. Noticed a big soak up of volume at price $3.30 and large volume there which I could not see on the d.o.m. Still some time left to trade up before the Westpac decision impacts the company. Sentiment ???
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my rough workout says the dividend shld have made GMA drop abt 7 or 8% , but it went down 23% & stayed there

Any Idea why there was such a huge drop ?
 
Is anyone else in this stock? On my calculations it is incredibly cheap and to all appearances a solid company.

I have been steadily building a position in it since it dropped below $2.70. It is now trading at just over 60% of book value.
 
Rainman said:
Is anyone else in this stock? On my calculations it is incredibly cheap and to all appearances a solid company.

I have been steadily building a position in it since it dropped below $2.70. It is now trading at just over 60% of book value.
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The banks taking their Mortgage insurance business in house doesn't worry you? concerned me so i stayed away.
 
So_Cynical said:
The banks taking their Mortgage insurance business in house doesn't worry you? concerned me so i stayed away.
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That's one concern... a fair chunk of the FY15 income will not be repeated next year so any valuation needs to take that into account.

Plus the fact that arrears / default rates are at historic lows. So it may be a case of "as good as it gets". A potential investor needs to determine earnings through the housing / default cycle and apply the appropriate "through the cycle" discount rate / multiple in their valuation model.

In summary - not an easy task.
 
skc said:
That's one concern... a fair chunk of the FY15 income will not be repeated next year so any valuation needs to take that into account.
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A "fair chunk"? The Westpac contract represented 14% of GWP. I have still got GMA earning around $280 million in NPAT for FY 2016 which factors in a full year without the Westpac contract. At $280 million in NPAT, that still gives GMA a current earnings yield of 17.3% and puts it on a forward P/E of 5.7.

skc said:
Plus the fact that arrears / default rates are at historic lows. So it may be a case of "as good as it gets"...
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It is true that mortgage delinquency rates are at historical lows - provided that your timeframe goes back no further than 2006. That is what Moody's observed in its most recent report on the topic:http://www.securitisation.com.au/Li...tial Mortgage Delinquency Map, March 2015.pdf. Moody's found that 1.19% of mortgages were in arrears as at the end of last year.

However, if you take a wider historical perspective, you will see below that mortgage delinquencies are actually higher than they have been:

Mortgage Delinquencies.png

So, while I don't have the data to work out what the long term average - say, across 20 years - is of mortgage delinquencies in Australia, the indications are that they are not presently at record lows.

I welcome any data suggesting the contrary.
 
Rainman said:
Banks? As far as I am aware, it was just one bank - Westpac
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1 bank we know of Westpac, the other 'banks' we don't know what will happen but it makes some sense to bring that business in house, the banks sell other insurances so why not mortgage?

SMH said:
CLSA insurance analyst Jan van der Schalk argued the group's underlying earnings were affectd by the loss of a major contract with Westpac Banking Corp, and a lower mix of 90 to 95 per cent LVR loans written in the business.
He argued there was also increasing pressure for Genworth's biggest client, the Commonwealth Bank of Australia, to pull the plug on its contract with the group. CBA accounts for 41 per cent of Genworth's premium revenue
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http://www.smh.com.au/business/genw...falls-25pc-in-first-half-20150804-girhdm.html
 
So_Cynical said:
http://www.smh.com.au/business/genw...falls-25pc-in-first-half-20150804-girhdm.html
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Thanks for the link to the article.

If there is "increasing pressure" on CBA to terminate its contract with GMA, it is probably for the same reason that WBC ended its agreement with GMA: because it no longer wants to make loans of greater than 90% of the value of the property mortgaged. But if CBA did that, it would be giving up valuable market share and someone else is certain to pick up that business in any event.

I venture also that the business that WBC has given up by its decision not to make 90%+ LVR loans has gone to competitors - either banks or other mortgage lenders. I doubt whether the business has simply evaporated in the ether - especially in this low-interest rate environment.
 
So_Cynical said:
As would the profits...remain on their books - do a deal with a reinsurance firm to reduce risk.
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Yes, CBA could do that perhaps. And perhaps it might. But perhaps it might not. Anything is possible in the future. There is always a reason not to buy when value is staring one in the face.
 
Rainman said:
Yes, CBA could do that perhaps. And perhaps it might. But perhaps it might not. Anything is possible in the future. There is always a reason not to buy when value is staring one in the face.
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I said the same about gold stocks...
 
joeno said:
I said the same about gold stocks...
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I couldn't comment on the value of gold stocks. But I know a little bit about insurance.

For any of you who are yet to be convinced that GMA is probably one of the most undervalued companies currently trading on the ASX, you might benefit from a post by a guy called dannyboyLIAC who is a member on the forum Hot Copper. He has written on GMA and has crunched the numbers. He also knows the mortgage insurance business like the back of his hand.

His post on GMA, apart from being quantitatively compelling, confirms my initial belief that, fundamentally, GMA's undervaluation is due to ignorance of the mortgage insurance business. That ignorance has bred fear. But fear, thankfully, brings opportunity.
 
Rainman said:
His post on GMA, apart from being quantitatively compelling, confirms my initial belief that, fundamentally, GMA's undervaluation is due to ignorance of the mortgage insurance business. That ignorance has bred fear. But fear, thankfully, brings opportunity.
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That may be true,but looking at it from a technical view also I certainly would not buy it at the moment while it is in a downtrend,who knows the stock may keep going down or move sideways from here.

If you are confident about the value I would at least wait until there is more information that the stock price is going to move up and earn some capital gains,cannot see that at present.:2twocents
 
Triathlete said:
That may be true,but looking at it from a technical view also I certainly would not buy it at the moment while it is in a downtrend,who knows the stock may keep going down or move sideways from here.

If you are confident about the value I would at least wait until there is more information that the stock price is going to move up and earn some capital gains,cannot see that at present.:2twocents
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If it is a bargain at $2.44, it will be even more of a bargain at a lower price.
 
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