Morningstar slashes Helia price estimate on CBA contract risk
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The news: Morningstar has sharply lowered its fair value estimate on Helia shares after the mortgage insurance provider said its lenders mortgage insurance (LMI) contract with Commonwealth Bank is at risk.
The numbers: Morningstar cut its fair value estimate on Helia by 14% to $3.60, following the company flagging the potential loss of its contract with CBA, which accounts for 44% of its gross written premiums.
Helia shares slid nearly 26% to $3.61 on Monday after it told investors CBA had entered exclusive negotiations with another unnamed provider.
The context: Morningstar analyst Nathan Zaia estimated that either QBE Insurance or Arch Capital have most likely displaced Helia as CBA’s LMI supplier, and said that price was likely to be the deciding factor. “Losing the contract will mean Helia shrinks materially … Even multiple new agreements will not fill the void likely to be left by Commonwealth Bank,” he said in a note.
Zaia expects the hit to Helia’s profit to be far more gradual as revenue from LMI is recognised over several years. Operational cost savings and lower technology investment due to a reduced insurance book are also expected to ease the earnings hit, he said.
The source: Morningstar research
