Helia: Profit Growth in the Face of Shrinking Demand Likely a Short-Term Phenomenon

We maintain our AUD 3.20 fair value estimate for no-moat-rated Helia after reviewing first-quarter numbers. The 145% increase in first-quarter 2023 profit to AUD 121 million is impressive. The lenders mortgage insurance provider delivered a decent insurance underwriting result, but the profit uplift is driven by higher investment income thanks to higher interest rates. At the top line the dramatic decline in demand for LMI continues as gross written premiums tanked 52% from the previous corresponding period. For now, the impact on revenue continues to be far less material as the insurer recognises revenue on policies written in recent years when demand was strong and benefits from high levels of cancellations. Policy cancellations, due to higher-than-usual refinancing, continues to be beneficial and pulls forward revenue and profits. Net earned premium was only down 13%.