Analysts Forecast Earnings To Fall To A$97 Million By 2028

Key Takeaways

• Potential growth is hindered by reliance on government schemes and lender self-insurance, affecting market share and revenue.
  
• A rise in unemployment could increase claims, decreasing net margins and earnings, highlighting economic vulnerability.
  
• Strong financial performance, technological integration, and high customer satisfaction are driving revenue growth and profitability, despite competitive and market challenges.

Catalysts

Helia Group Limited, together with its subsidiaries, is involved in the loan mortgage insurance business primarily in Australia.

• Investors might perceive that the continuation of Government's Home Guarantee Scheme could limit Helia's ability to grow its gross written premiums (GWP) significantly, impacting future revenue growth potential.
  
• The market appears concerned that increased lender self-insurance and waivers might persist, thus suppressing Helia's market share gains and reducing revenue.
  
• There is a risk that if unemployment rates rise, as anticipated beyond the current low-level period, Helia could experience higher claims, negatively affecting net margins and profitability.
  
• Helia's assertion that current unusually low claims are not sustainable, could signal to investors that net earnings may decrease when claim levels return to historical norms.
  
• The company's heavy reliance on low unemployment and stable house prices to maintain low claims levels suggests vulnerability to economic downturns that may affect future earnings stability.

Helia Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Helia Group's revenue will decrease by 13.4% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 45.8% today to 29.6% in 3 years time.
• Analysts expect earnings to reach A$97.0 million (and earnings per share of A$0.44) by about March 2028, down from A$231.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting A$113 million in earnings, and the most bearish expecting A$81 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.5x on those 2028 earnings, up from 7.2x today. This future PE is lower than the current PE for the AU Diversified Financial industry at 17.1x.
• Analysts expect the number of shares outstanding to decline by 2.7% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.2%, as per the Simply Wall St company report.

Helia Group Future Earnings Per Share Growth

Risks

• Helia Group's strong financial performance is supported by a robust capital position, allowing for continued investment and shareholder returns, which could bolster their overall revenue and profit margins.
  
• Strategic initiatives to integrate technology with customer services, such as new APIs and digital onboarding, may enhance operational efficiency and customer satisfaction, potentially impacting revenue positively by shortening customer transition times.
  
• Despite challenging market conditions, Helia maintains 100% customer contract renewals and high customer satisfaction, as evidenced by a strong Net Promoter Score, which could help sustain revenue stability.
  
• Helia's increase in gross written premium and market share, despite industry constraints, highlights its ability to navigate competitive pressures, which could stabilize or enhance revenue growth.
  
• The low level of claims incurred, as well as the profit from releases of reserves, offers a continued positive impact on the net margins and profitability, at least in the near term.

Valuation

• The analysts have a consensus price target of A$4.547 for Helia Group based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$328.1 million, earnings will come to A$97.0 million, and it would be trading on a PE ratio of 14.5x, assuming you use a discount rate of 7.2%.
  
• Given the current share price of A$6.11, the analyst price target of A$4.55 is 34.4% lower.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.