Shortlisted – OnTheHouse and Genworth

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Tony Featherstone added three tech stocks to the takeover target list in his article last week. They are: OnTheHouse Holdings, Nearmap and iBuy Group.

“As micro-cap stocks, they clearly suit experienced speculators, who are comfortable with higher risk,” he said.

“All three have been out of favour this year, and look a useful bolt-on acquisition for a larger technology company seeking to increase its scale. They also have low or no debt, reasonably open share registers and are not widely covered by broking firms – useful takeover-target traits.”

Last week, Peter caught up with Ellie Comerford, CEO of lenders’ mortgage insurance provider Genworth Mortgage Insurance Australia (GMA), which listed on the ASX on May 20, in a $583 million float that valued the company at $1.9 billion. US parent Genworth Financial retained about two-thirds of the equity.

James Dunn says GMA shares shot out of the blocks on the exchange, opening trade at $2.91, compared to an issue price of $2.65, and have continued to rise, reaching a high of $3.59 in July. The stock currently trades at $3.49. In its half-year result (to June 30), GMA lifted its net earned premium by 13.6% and its underlying net profit by 40.7%, which was marginally ahead of expectations. A better claims experience led the company to upgrade its FY14 guidance by about 8% compared to the prospectus numbers.

Despite concerns over a housing boom, Comerford said GMA was tracking well on all of its metrics, actually recording a decline in delinquencies year-on-year to June – the rate was 0.36%, versus 0.4% at June 2013. This is despite an uptick in the delinquency rate from 0.34% at the March quarter, an effect that is seasonal. The first half typically reveals higher net new delinquencies after Christmas and the summer holidays.

Comerford thinks the economy is in a sound position, and brokers liked the outlook for GMA, upgrading FY14 and FY15 expectations. (GMA has a December year-end.) Despite the strong performance so far – GMA is 32% above issue price – analysts who follow the stock reckon GMA still has some further room to move. The consensus price target, at $3.65, is 4.5% above the current share price, at $3.49. Add to that a 5.1% fully franked yield in FY14 (December year-end) and a 7.4% prospective FY15 yield in FY15, and GMA remains attractive.

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