Tuesday 14 February 2017 by FIIG Research Company updates

Company updates – Emeco, Genworth Australia, Genworth Holdings Inc., IMF Bentham, McPherson’s and NRW Holdings

Emeco announced a revised timeline for its creditors’ meeting, both Genworth Australia and Genworth Holdings Inc. posted multiple updates, IMF Bentham announced the establishment of a $200m US focused litigation funding vehicle, McPherson’s released their preliminary unaudited 1H17 results and NRW Holdings has been awarded a contract from Altura Mining Limited

Emeco

Emeco has announced its revised timeline to hold a creditors’ scheme meeting on 13 March 2017, to vote on the revised proposed recapitalisation and three way merger with Orionstone and Andy’s Earthmovers.

More information can be found here.External link - opens in a new window

Genworth Mortgage Insurance Australia Ltd full year 2016 results

Key points:

  • Underlying NPAT is down 20% to $212.2m
  • Delinquencies stepped up to 46 bps in 2H16, driving a 35% loss ratio (consistent with guidance)
  • Capital remains strong with Prescribed Capital Amount (PCA) coverage of 1.57x. This translates to circa $400m of surplus capital above the top end of its 1.32x-1.44x target PCA. The company did not highlight any capital management activities
  • FY17 guidance:
    • Gross written premium (GWP)/Net Earned Premium (NEP): Genworth expects both to fall 10%-15% vs. FY16A
    • Loss ratio: 40-50% vs. 35% in FY16A
    • Expense ratio: 28-30% vs. 25.7% in FY16A

Potential impact on BBSW+3.50% Tier 2 Notes: If Genworth Australia continues to write less business, liabilities will naturally reduce, reducing the amount of regulatory capital required to be held. As the business shrinks, capital is released which is more than sufficient to repay the $200m Tier 2 notes when they are due. At December 2016 the group held $800m of excess capital. However, Bloomberg consensus expects net income to stabilise in 2018.

More information can be found here.External link - opens in a new window

Genworth Holdings Inc. full year 2016 results

Genworth has reported a statutory net loss of USD196m, impacted by net investment gains, net of taxes and other adjustments of USD19m in the quarter, compared to net investment losses of USD1m in the prior year.

China Oceanwide acquisition update:

  • Genworth is to hold a meeting to obtain stockholder approval on 7 March
  • All filings required under the merger agreement for regulatory approval of the transaction have been submitted in U.S., China, and other international markets
  • Genworth and China Oceanwide continue to expect the transaction to close by mid 2017

More information can be found here.External link - opens in a new window

IMF Bentham

IMF Bentham announced the successful outcome of a case in the US. IMF expects to recognise revenues of ~AUD7.8m and profit before tax of ~AUD3.9m.

Further, the group also announced the establishment of a USD200m US focused litigation funding vehicle. IMF will invest up to USD50m.

More information can be found here.External link - opens in a new window

Liberty RMBS

Several Residential Mortgage Backed Securities originated by Liberty Financial have received credit rating upgrades as a result of increasing credit enhancement and portfolio performance. The following notes are affected:

  • Liberty 2014-2
    • B Notes receive a one notch upgrade
    • C-F Notes receive a two notch upgrade
  • Liberty 2015-1
    • B Notes receive a one notch upgrade
    • C-F Notes receive a two notch upgrade
  • Liberty 2016-1
    • B-D Notes receive a one notch upgrade

Additional note subordination and fully funded cash reserves have increased the buffers against loss available to investors. In each case, performance has been “within expectations”, while expected loss assumptions remain unchanged. Cumulative losses on the loan portfolios are reflective of this:

Transaction Cumulative loss
Expected loss assumption
Liberty 2014-2 $1,477 0.00% 1%
Liberty 2015-1 $133,490 0.03% 1.1%
Liberty 2016-1 $39,022 0.01% 1.4%


Please contact your local dealer for more information.

McPherson’s

McPherson’s has released its preliminary unaudited results for the first half FY2017. Key notes:

  • Sales are down 11.5% to $148.9m (1H16: $168.3m) due to closure of the unprofitable Impulse Merchandising Division and declines in low margin private label and agency revenues
  • EBIT is only down 6.6% to $13.5m given improved margins
  • EBIT margin improved to 9.06% from 8.6%
  • Non cash impairments are $19.8m
    • The demise of the Masters: resulted in non cash impairments of $7.0m and $5.0m in goodwill and brand names respectively
    • Revitanail brand and goodwill subject to non cash impairments of $6.0m and $1.8m respectively
  • NPBT non cash impairments drove statutory loss before tax of $10.0m (FY2016: $13.5m profit)
  • Net debt is down 56% YoY to $40.9m ($92.8m at 31 December 2015), due to improved working capital efficiency, operating cashflow and the divestment of the remaining 49% interest in the housewares joint venture.
  • Outlook: “Improved EBIT margins, a more favourable hedged AUD/USD profile and reduced borrowing costs are anticipated to lead to an increase in underlying profit before tax for the second half of FY2017 and for the year ended 30 June 2017 in comparison with FY2016”. Underlying PBT in FY16 was $20.4m therefore MCP expecting higher in FY17.

We note that sales, underlying EBIT and net debt are in line with our full year forecasts. Full 1H17 results are due 21 February 2017.

An ASX announcement can be found here.External link - opens in a new window

NRW Holdings

NRW Holdings has announced it has been awarded a contract by Altura Mining Limited for the mine development, drill and blast mining services at Altura’s new Pilgangoora Lithium Project. The contract value is approximately $100m, beginning in March 2017 and running for 66 months.

An ASX announcement can be found here.External link - opens in a new window

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