Genworth Australia Finally Heads for IPO - Analyst Blog

After about two years of initial plan, Genworth Financial Inc. GNW announced that its subsidiary Genworth Mortgage Insurance Australia Limited has filed prospectus with the Australian Securities and Investments Commission for an initial public offering (“IPO”) of 40% of its shares.

In the third quarter of 2011, Genworth Financial announced its plans to go for an IPO of its Australian mortgage insurance business. The IPO was an effort to reorganize the business portfolio, fund future growth opportunities for the Australian business with greater access to the capital markets, maintain control positions of strategic mortgage insurance platforms in Australia, and free material capital for redeployment. Back then, the IPO had been planned for the second quarter of 2012. However, prevailing market conditions at that time were not conducive for equity offering. As a result, the company decided to push forward its IPO to early 2013 that was postponed even further.

With improving performance of the Australian operations of late – Australia Mortgage Insurance business has been performing well, witnessing favorable loss experience, generating sturdy returns and paying dividends – the company decided to initiate the IPO.  The company also noted that IPO activities in Australia have gained pace over the last year. It is likely that the company found the time suitable to capitalize on the improving market conditions and hence headed for the IPO.

Upon culmination, gross proceeds from the IPO are estimated between $400 and $700 million while fees and expenses in connection with the offering are projected between $23 million and $32 million. The company assumes exchange rate of 0.92 for the Australian dollar.

Proceeds from the IPO is expected to be deployed to pay down some of the intercompany funding arrangements with subsidiaries, and then will be distributed to Genworth.

Genworth is scheduled to release its first-quarter earnings on April 30, 2014. Last quarter, the company had reported a positive earnings surprise. However, out proven model does not conclusively show that Genworth is likely to beat earnings this quarter. This is because though it carries a Zacks Rank #3 (Hold), which increases the predictive power of a positive surprise, when combined with zero Earnings ESP, it makes prediction difficult.

Some better-ranked life insurers worth reckoning are Primerica, Inc. PRI, Protective Life Corporation PL and Sun Life Financial Inc. SLF. All these stocks sport a Zacks Rank #2 (Buy).