Helia shares rally as Macquarie upgrades rating
Make us a preferred source
Make us a preferred source on Google
The news: Shares in Helia Group soared on the ASX after ending Wednesday's session as the worst performer across the ASX 200, as analysts downplayed the likelihood of the company losing a key contract with the Commonwealth Bank.
The numbers: Helia shares lifted 12.6% to $3.76 by 11:50am AEST, having tumbled 21.09% on Wednesday.
Macquarie analysts upgraded their rating on the stock to 'outperform' from 'neutral' and kept their 12-month target price at $3.90. They also increased their earnings per share estimates by 1% in FY24, 3% in FY25 and 5% in FY26 due to extra accretion from lower share price on forecasted buybacks.
Morningstar analysts maintained their fair value estimate of $4 for Helia, saying that shares were now undervalued after Wednesday's selloff.
They noted that if the company lost its lenders mortgage insurance (LMI) contract with CBA, which represented around 53% of its gross written premium (GWP) in FY23, it could see its fair value estimate fall around 15%, or close to its last closing price.
The context: Both Macquarie and Morningstar analysts said they expected Helia's contract with CBA to be extended. Macquarie analysts noted that Helia may not only win the tender, but may also become CBA's exclusive LMI writer, gaining Bankwest as a lender, and gaining a potential 9% uplift to GWP.
Likewise, Morningstar estimated that winning new business with Bankwest would add another 10% to Helia's 2023 premiums.
Macquarie said that if Helia lost the contract, the financial impact would be "mostly felt in 2027", due to the contract expiring at the end of 2025 and the delay of revenue recognition. If that occured, the analysts expected Helia to accelerate capital management initiatives.
The sources: Macquarie research, Morningstar research
