What: Shares of Genworth Mortgage Insurance Australia (ASX: GMA) could be in for a strong uptick in today's trading, on the back of its half-year report which was released this morning.
So what: In what proved to be a turbulent six-month period for the mortgage insurance company, GMA reported a 25% fall in statutory profit, equal to $113 million, but a "steady" underlying profit of $132.9 million, down from $133.1 million in the prior corresponding period. Underlying profit excludes the after-tax impact of unrealised gains or losses on the investment portfolio.
Commenting on the result, GMA CEO and Managing Director, Ellie Comerford, said, "The business delivered a solid first half performance in line with the prior period demonstrating the continued resilience of the business in the face of a dynamic economic environment and mortgage market."
"The loss experience in the first half is in line with our full year 2015 guidance and favourable by historic standards" Ms Comerford added. "However, it was elevated relative to the pcp, with higher losses in parts of Queensland and Western Australia as the economy continues to transition away from resources sector-led growth."
The company said the economy has been resilient despite GDP growth remaining below trend. It said it continues to monitor and remains cautious about areas affected by the mining slowdown.
Pleasingly, GMA reiterated its full-year guidance of: Net earned premium growth of 5%; and a full-year loss ratio of between 25% and 30%.
It also declared an interim dividend of 12.5 cents per share and a special dividend of 18.5 cents per share, both fully franked.
The dividends are payable 4 September 2015, to those shareholders on the register at 21 August 2015. Based on yesterday's closing price of $3.51, the two dividends represent a yield equivalent to 8.8% fully franked!
"The fully franked interim dividend and special dividend declared today highlight the Board's focus on creating shareholder value," Ms Comerford said.
Should you buy Genworth shares?
I must admit, an 8.8% fully franked yield is impressive and, along with its price-earnings ratio of just 9x, will have many sharemarket investors excited.
Over the medium-term, however, Genworth could be seen as a risky investment (which explains its low profit multiple).
Following Westpac Banking Corp's (ASX: WBC) decision to terminate its agreement with GMA for the provision of lenders mortgage insurance (LMI), there are fears Commonwealth Bank of Australia (ASX: CBA) may do the same.
Moreover, if you're concerned about the economy or local housing market, now mightn't be the right time to start buying GMA shares.
