Beaten-up ASX 200 stock rebounds 15%. Macquarie says more to come

The sell-off could be unfounded, one broker says.

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Helia Group Ltd (ASX: HLI) shares experienced a strong rebound on Thursday, with the ASX 200 stock currently surging nearly 15% to $3.84 per share.

Yesterday, Helia was heavily sold off following reports Commonwealth Bank of Australia (ASX: CBA) was tendering a long-held contract with the company. It closed at $4.22 per share on Tuesday, before sliding back to $3.34 per share after Wednesday's sell-off.

Today's recovery rally follows an upgrade on the ASX 200 stock from analysts at Macquarie. This has potentially injected a dose of optimism into the beaten-up stock. Let me explain.

ASX 200 stock rebounds

The drop in the ASX 200 stock yesterday was triggered by news that CBA would run a tender for its lenders mortgage insurance (LMI) business. This is a contract it has long held with Helia.

This business also currently contributes about 53% of Helia's gross written premium (GWP). Investors were understandably spooked yesterday, contributing to the downside.

However, Macquarie's analysts suggest that Helia is well-positioned to win this tender once again. The investment bank noted that this is not CBA's first tender, and historically, Helia has managed to retain its contracts.

"[W ]e think HLI would likely win the tender again and be the exclusive LMI writer, [for CBA}", it said in a note, according to The Australian.

If the ASX 200 stock is successful, it could also secure Bankwest, the broker says. This could potentially boost its GWP by 9%.

Macquarie believes the financial impact of losing the contract would be minimal in the short term. The current contract expires at the end of 2025, with revenue impacts not expected until 2027.

The firm's research of recent tenders of similar variety also "suggests with multiple LMI providers generally chose the provider they did the most business with".

Other brokers weigh in

Goldman Sachs also weighed in on the situation in a note yesterday. According to the firm, the tender process with CBA is not a new challenge for the ASX 200 stock. "We note that this is the second time in three years that HLI's Supply and Service contract with CBA has been put up for RFP," it stated.

There should be very limited impact on near-term earnings as HLI will continue to earn GWP from the existing CBA contract until its expiry on 31-Dec-25..

Since successfully winning the last RFP, we understand that HLI has increased the levels of its technology integration with CBA, having largely rebuilt its technology interface.

This perspective aligns with Macquarie's view that any potential financial impact would be felt much later, giving Helia time to adjust.

Goldman has a neutral rating on the ASX 200 stock with a $4.53 per share price target.

Conclusion

Today's rebound in this ASX 200 stock shows that investors are keeping an eye on the tender process. In the last 12 months, Helia shares have held a 13% gain.

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 positions in and has recommended Goldman Sachs Group and Macquarie Group. The Motley Fool Australia has positions in and has recommended Macquarie Group. 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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