Genworth MI Canada Inc. (TSX: MIC) is one of the leading private-sector residential mortgage insurers in Canada and offers mortgage default insurance across the region. The Company has built a broad underwriting and distribution platform across the country that provides customer-focused products and supports services to the residential mortgage lenders and originators.

The Group declared a quarterly dividend of CAD 0.54 per common share, payable on June 3, 2020.

Q1FY20 Financial Highlights: Genworth MI Canada declared a decent quarterly number, stood in line with previous quarters amidst the Global pandemic scenario. Total premiums written grew to CAD 114 million from CAD 105 million in the previous corresponding quarter, aided by an improved housing activity which resulted in a 10% y-o-y growth in transactional premiums written. Premiums earned improved marginally by 1% from pcp to CAD 171 million, reflecting relatively higher levels of total premiums written in FY19. The Group reported its loss ratio at 14% on as compared to 15% in pcp, primarily due to a decrease in newly reported delinquencies, net of cures, partially offset by a higher average reserve per delinquency. Net operating income stood marginally lower at CAD 117 million, as compared to CAD 119 million, due to a spike in expenses.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Outlook: The Group has revised its loss ratio range to 25% - 40% due to COVID-19 pandemic. The Company expects a decline in the total premiums written on the smaller transactional market size on account of the ongoing pandemic, while anticipates an increment within the portfolio insurance segment.

Valuation Methodology: Price to Book Based Relative Valuation (Illustrative)

P/BV Based Approach (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of MIC declined ~31% in the last nine months due to a slump in housing demand on account of weak consumer sentiment. The group is going to benefit from the initiatives taken by the government to help ensure liquidity is available to mortgage lenders and to support the continued availability of mortgage credit. The Government announced buying plans of CAD 150 billion of insured mortgage pools under the National Housing Act Mortgage-Backed Securities under Insured Mortgage Purchase Program, to support the segment in the downturn. The Bank of Canada lowered its key policy rate by 150 basis points to 25 basis points, to boost consumer sentiments.The Group is a leading name within the industry and is well equipped to take the opportunities from the sector. The stock of MIC is quoting close to the lower band of its 52 weeks trading range of CAD 61.39 and CAD 24.03, and we believe most of the negatives have priced in, and the recent price correction offers a good entry point for long-term investors. We have valued the stock using Price to Book value-based illustrative relative valuation method and have arrived at a target upside of lower double-digit (in percentage terms). For the said purposes, we have considered industry (Financials) median on NTM basis. Hence, we recommend a ‘Buy’ rating on the stock at the current market price of CAD 29.92 on 21 May 2020.

MIC Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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