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Soros-Backed Essent Preps for an IPO

This player in mortgage insurance is enjoying substantial growth


Mortgage insurance operator Essent Group has just set the terms of its upcoming IPO, and while the offering sounds boring on a business basis, it does have a little star power. One of Essent’s largest shareholders is Valorina, which is controlled by billionaire George Soros. Valorina has an 8.7% stake, and it doesn’t plan to sell any of it.

Essent got its start back in 2008 and wrote its first policy in May 2010. Since then, the company has been growing at a rapid clip, snagging about 12% market share for new policies. Some of the reasons for its success include no problems with liabilities from the financial crisis, a strong balance sheet and a fairly rapid speed of service.

Essent reached profitability in the fourth quarter of 2012, and net income was $46.4 million through the first nine months of 2013.

The recent uptick in interest rates could be problematic; however, Essent’s market share gains should help offset some of the headwinds. The firm’s focus on quality also should help — about 94% of the in-force book of business consists of borrowers with FICO scores of 700 or better.

Besides, the long-term fundamentals still look promising for the residential real estate market. According to Essent’s S-1:

“The U.S. housing market continues to recover from the financial crisis, with purchase money mortgage originations increasing, the rate of household formation growing, new housing starts and home sales increasing, mortgage foreclosure activity declining, and home prices increasing across most of the country from depressed levels.”

The Essent IPO will list 19.7 million shares on the New York Stock Exchange under the ticker symbol of “ESNT” at a range of $13.50 to $15.50. Lead underwriters include Goldman Sachs (GS), JPMorgan (JPM) and Barclays (BCS).

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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