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Research Notes on Radian Group Inc. (RDN)

Dijkstra's picture

By Dijkstra - Posted on 08 January 2012

Research Notes on Mortgage Insurance
The company has good relations with the public sector. It offers financial guarantee for public finance. RDN is the third largest mortgage insurer in the U.S.
RDN’s CFO states the following:
"We are seeing some improvement in the macroeconomic environment and housing market, which in turn has begun to stabilize the performance of our mortgage insurance legacy book," stated Quint. "While we believe the recovery to a more normal economic environment will be slow, there are many signs that the worst is behind us." (2)
* Approximately one third of RDN’s net income from non-mortage insurance. (1)
* Capital ratio (16.9:1) is among the lowest in the industry (2)
Question marks
1. Can we bet on the improvement of the macro-economic environment and housing market?
2. Investor concern over the credit quality (2)
3. Changes in the financial system in which private mortgage insurers are limited
4. Volatility in earnings caused by changes in fair value of derivative instruments
5. Lack of appropriate surveillance and mitigation of losses by primary clients
6. What is rating of the mortgages?
1. financial guarantee insurance for public finance
2. mortgage insurance
3. asset-backed and structured finance transactions
Key Statistics
Price per share: $6.84
Shares outstanding: 82.99M
Market Cap: 567.62M
Enterprise Value : -2.05B
Price/Sales: 0.41
Price/Book: 0.34
Enterprise Value/Revenue : -1.43
Enterprise Value/EBITDA: 5.34
Net Debt (in $M): 1,496.43
Total long-term debt/EBITDA: -3.9x
Net debt/EBITDA: -3.9x
P/E: -2.33x
P/FCF: -0.02x
EBIT: -505.57M
EBITDA: -383.03M
Sources (1) (2)

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