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Mining-exposed states hit Genworth profits

Morningstar with AAP  |  02 Aug 2017Text size  Decrease  Increase  |  

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Rising loan delinquencies in Queensland and Western Australia and lower new business volumes have weighed on Genworth Mortgage Insurance (ASX: GMA), which has reported $113.5 million in net profits after tax for 1H17.

Shareholders will receive a 12 cents a share, fully-franked interim dividend and a fully-franked special dividend of 2 cents a share, both payable on 30 August, 2017.

Top-line pressure due to macro-prudential measures impacting high loan-to-valuation ratio (LVR) mortgages and a client contract expiry in April have all affected new business volumes, says Morningstar equity analyst, Ravi Reddy.

The underlying 1H loss rate increased from 33 percent to 39 per cent. "However, this result was largely as expected, with Genworth reaffirming guidance including a full-year loss rate of 40 to 50 per cent," Reddy says.

The mining-exposed regions of Western Australia and Queensland were the main pressure points for the business, which are suffering higher rates of unemployment, underemployment and overall low wage growth.

Collectively, these states account for 35 per cent of the group's insurance in-force. New South Wales and Victoria--representing 28 per cent and 23 per cent of insurance in-force, respectively--continue to perform strongly.

Also on the upside, "Genworth's regulatory capital position is still very strong, and capital management initiatives continue to be a feature," Reddy says.

Genworth's chief executive Georgette Nicholas expects gross written premium in 2017 to be lower than in 2016, and net earned premium to fall by up to 15 per cent.

"Despite some challenging market dynamics, including elevated mortgage delinquencies in resource-exposed regional economies and a smaller high LVR market, our profitability remains strong," she said in a statement.

"These labour market dynamics are increasing the instance of mortgage stress in certain regional economies and Genworth expects these trends to drive elevated mortgage delinquencies in these regions in 2017."

Management also believes mortgage interest rate increases, particularly for investor and interest only loans, and recent changes to minimum bank equity requirements may also impact price growth this year.

Genworth shares were boosted by the company's announcement of a buyback of up to $100 million of its shares, which based on their price on Tuesday represents 6.5 per cent of the company's issued share capital.

The share price was up 18 cents, almost 6 per cent, to $3.20 at market close.


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