Initial thoughts on value / yield

So had the chance to dig up some old data and crunch some numbers. Some loose thoughts.

1) Contracts
With CBA and ING pending cease, GWP going forward will be c. $80-90m (40% of prior year). My guess is assume thats the case in FY26. It always takes longer to roll out but wild card will be if ING give notice sooner but given we are in July, a 3 month notice plus some lag gets you to end of year.

The remaining bigger banks are Bendigo and BoQ - couldnt find length of contract but they were won in 2022 so lets say 5 years, means the risk of in-housing / going somewhere is post 2027 but assume any notice likely to be received later this year or early 2026. I think we gotta risk weigh this factor so just assume roll-forward GWP continues to trickle down.

2) Future Earnings
Taking the above into account, my basic modelling assume even at the above levels, between Insurance Service Result and Net Financia Result (this will also shrink as capital is released), PBT remains pretty strong in light of Opex right-sizing and decrease finance costs.

The ability to pay Dividends looks strong in the absence of any regulatory intervention. I can't see why Helia would stop writing new business as long as these contracts remain on foot. Maybe its a risk in FY27 if Bendigo or BoQ also leave. At that point, maybe PCA requirements tighten.

Otherwise, the ability to pay 40-50c p.a dividend is possible and likely. For investors chasing yield, even a $5.00 share price delivering 10% yield is still attractive.

3) Where the risks are
My view is these contract losses are a bit of noise but every future contract loss will have a meaningful near term hit to share price but recovery seems to inevitable as investors get their heads around yield. Saying that, the risk is if a "strategic review" changes the business model or how regulators perceive risk in the business and its ability to provide coverage, ie tightens PCA requirements which impacts dividends and special dividends.

The flip of the above is we are in a decent housing environment again with material LMI risk aged out. Writing less GWP will only strengthen this position.

Some have raised the idea of a take out but if you are a strategic, buying a gradual wind-down book doesn't seem logical and its hard to justify a material premium to backbook value. I consider that a lower likelihood but what do I know?

DYOR of course.