February 15, 2015 - 3:57pm EST by
2015 2016
Price: 8.41 EPS 0.o O.80
Shares Out. (in M): 58 P/E 0.o 17
Market Cap (in $M): 490 P/FCF 0 14
Net Debt (in $M): 0 EBIT 0 64
TEV (in $M): 353 TEV/EBIT 0.o 7

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  • Underfollowed
  • No Debt
  • Mortgage Insurance


NMIH is an off the radar screen opportunity, trading at a small premium to book value which should appreciate significantly over the next 12 months.  The combination of accelerated growth with the current drivers in place, along with a market multiple should result in a stock that doubles over the next 12 months.

NMIH through its subsidiaries simply provides mortgage guuarantee insurance.

The company had its IPO in 2013, raised over $500mm, and unlike most of the names in the space, has no debt.

The company trades at a small premium to current book value about $7.15 and has $2.30 per share of cash.  


As the earnings drivers are in place, earning should continue the acceleration seen last quarter as the market becomes aware of the story and should receive a market multiple (approximately two times book),

The MNIH story is a very simple one, a few key points-

Private mortgage insurance is 110 percent a commodity business with every MI (Mortgage Insurer) doing exactly the same.

Most of the industry incumbents have legacy credit issues (RDN, MTG) which creates an opportunity for NMIH.

De novo MIs have challenges growing their top line revenues (ESNT, ACGL).

Historically MIs earn a 7-9 percent ROI and trade at 2xs book value.

Most importantly, Q4 will be the first quarter with market heavyweights, correspondents WFC and JPM on board which will drive earnings substantially.  WFC and  JPM represent 47 percent of the correspondent origination market and 25 percent of the retail correspondent market.

The macro environment could also be helpful as the recent decline of interest rates due to collapsing oil prices and geological risks, etc could create a higher demand for refinancing.  If the ten year does move to 1 percent as many are predicting a mini refinancing boom could occur.


How the story plays out-

The company reports  another strong quarter (q4) fueled by their organic growth and correspondant giants WFC and JPM on board.  The company ears a ROI od 7-9 percent on their capital base of $500mm, earning about $.80 EPS on 134mm of revenues.  Book value grows (58mm shares) from $7.15 to $8.30ish.  The market can't ignore the story any longer and gives it a market multiple of 2xs book value and the stock trades to $15 within a year.

Please note the idea can be hedged by shorting ESNT which currently trades at 2xs book value and has had an impressive ramp, but now is seeing some slowdown in growth


A few other tidbits which could be helpful to the NMIH story-


They achieved 950mm in new insurance last quarter.

They are now licensed in 50/51 jurisdictions

They are the only new MI to be approved by Fannie Mae and Freddie Mac in the last 20 years.

They are the only MI to underwrite every policy.

They are the first MI to offer 12 month rescission relief


Major risks

1) a sudden rise in interest rates slowing down loan originations.

2) a probable need to raise capital in 2016 which is unsuccessful.




I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.


Q4 earnings with correspondants WFC and JPM on board.

Book value appreciating from $7.15 to approximately 8.30.

Market recognition of the story and the stock receiving a market multiple of approximately two times book value.

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