Hi,
This stock has done quite well YTD with an increase of 50 %+ YTD and on one year.
It is supported, in particular, by 3 elements :
- a high dividend yield,
- a significant and regular share buyback program (still a lot of more shares could be bought before the end of December),
- and now the announcement that the stock will enter the ASX 200 index in December.
The fact that, home prices have rebounded and reached a new historical high in November is another positive element for them.
Their business (insuring high LVR mortgages) is quite related to first home buyers, but I have not been able to find the % of their business done with FHB.
Also interesting to note that 19 % of their business depend on investors (vs owner occupiers).
So, the reward for this stock is quite clear, in particular with results which continue to improve.
Despite a low level of new policies written during the last 18 months, Helia had an increase of its underlying NPAT of 21 % in FY 22 and + 32 % in H1 23.
These good results are driven by 3 elements :
- low level of claims** (delinquency of only 0.5 %),
- high level of cancellations (linked to high level of refinancing),
- higher investment returns (due to higher interest rates).
What is less obvious is the level of risk.
One way to see it : they insure 277 bn $ of mortgages and they have only 1.4 bn $ of equities.
Seen like that, it is a very risky business.
The reality is that the mortgages they insure have a LVR of only 48 %*.
So, on average, these mortgages seem to have a limited level of risk.
The risky part : the 5 % of policies estimated to have an effective LVR above 90 %.
In order to limit their risk, they have also re-insured their portfolio for 800 m $.
Overall, I feel that the main risk for them is a large decrease of home prices.
The recent history seems to indicate that this risk is limited, given that prices have rebounded from their lows, despite the increase of interest rates and without significant new government policy to support home prices.
But, there is still a risk that it may happen. It just looks limited for now, as long as unemployment remains low and there are still a lot of ways to support the home market in case of weakness (ex. decreasing interest rates, increasing the duration of the mortgages and/or government intervention through a lot of potential different policies).
* mainly due to the fact that the mortgages they insure are getting less risky every year, as customers pay off their mortgages. Of course, the portfolio of their mortgages they insure is made of a lot of not recent mortgages which have already been party paid back.
** the share of portfolio in negative equity bottomed in H1 22 and remained historically low at 1.6 % during H2 22.
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