Ann: Update on CBA contract, page-46

This is from the GS report from 4 August 2021, with summary below. Share price at the time of report was $2.28.

"However, back in late June, CBA, which represented 57% of GMA’s FY20 GWP,
announced that it would issue a Request for Proposal (RFP) relating to its Lenders
Mortgage Insurance (LMI) requirements following the 31-Dec-22 expiry of the current
exclusivity agreement it has with GMA. GMA has provided LMI services to CBA for >50
years, on an exclusive basis since 2006, and the company notes that CBA has not
issued an RFP for its LMI requirements in over a decade (here).
At the time of the announcement, we left our TP unchanged as we wanted the chance
to hear from the company in more detail around the issue at the result. With the result
today, we now incorporate a 10% discount to our valuation to set our target price.
The 10% discount is set at the midpoint of the valuation impact we would expect if
GMA was to lose the CBA contract. Why only a c.5-20% valuation impact if GMA lost a
customer that represented 56% of GWP: for a balance sheet intensive financial, which
we estimate writes incremental policies only slightly above its cost of capital, GMA’s
value overwhelmingly rests in its balance sheet (as opposed to in the value of future
earnings). Therefore, to the extent that GMA was to lose the CBA contract, we expect
the valuation impact would be relatively small. To this end, our DDM scenario analysis
suggests that the valuation impact of the CBA contract loss would be between 5-20%
(range reflects extent to which distributions can be franked in the event the CBA
contract is lost).
Applying a 10% discount to our revised $3.33 valuation, results in a A$3.00 target price.
Offering 46% upside to the current share price, we stay Buy."