ASX 200 stock plunges 15% on CBA deal news

The stock sold off sharply from market open.

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The S&P/ASX 200 Index (ASX: XJO) is slightly in the red in trading on Wednesday. But one ASX 200 stock has taken a much steeper dip.

Helia Group Ltd (ASX: HLI) shares have sold off sharply from the open on Wednesday following news about a potential change to a major contract it holds with Commonwealth Bank of Australia (ASX: CBA).

The ASX 200 stock closed trading on Tuesday at $4.22 apiece. At the time of writing, Helia shares are 15% lower and swapping hands at $3.58 each. Meanwhile, CBA shares are currently flat.

What happened with this ASX 200 stock?

Helia announced before the open on Wednesday that Commonwealth Bank intends to review a contract it has with the company. The contract involves its lender's mortgage insurance (LMI) requirements.

Helia currently provides LMI for CBA's new high loan-to-value ratio (LVR) residential mortgage loans. This contract is set to expire on 31 December 2025 and represents about 53% of Helia's gross written premium (using FY 2023 numbers).

The bank notified it will issue a request for proposal (RFP) for the ASX 200 stock's LMI offering. An RFP is a company document aimed to solicit or tender a contract with another firm to complete a project. It is akin to a company pitch, although relates to specific projects versus entire businesses.

The development may have caused uncertainty about Helia's future with CBA, which is one of the company's major clients. At least that could be the market's view, based on its initial reaction to the update, even though no final decision has been made.

Helia's response

There wasn't a negative tone from the ASX 200 stock in its announcement. Instead, Helia CEO Pauline Blight-Johnston remained optimistic about the "opportunity to continue or extend" the relationship.

Helia is Australia's first LMI provider and has played a pivotal role in the property market since 1965.

We harness the power of almost 60 years' experience to help aspiring home buyers realise their property dreams and get into homes sooner.

Blight-Johnson also highlights the 50-year relationship between the pair, where Helia has provided LMI to the bank.

What's next for the ASX 200 stock?

Despite the current uncertainty, Helia's financial results in FY 2023 were sound. The company achieved a net profit after tax (NPAT) of $275.1 million, a 37% increase from the previous year.

For FY 2024, it revised its insurance revenue guidance to $360 million to $440 million, down from $427 million previously. At its current price, Helia also offers a trailing dividend yield of 6.9%. Note, this is the trailing yield – if the dividend rate changes going forward, so too will the yield.

In the last 12 months of trade, the ASX 200 stock has climbed more than 10% into the green. CBA shares, on the other hand, have been a darling of the ASX this year, trading 14% higher since January.

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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