Guess which ASX 200 stock is tipped to plummet 32%?

Here's what analysts at Macquarie expect over the next 12 months.

Key points
  • Macquarie downgrades Helia Group to an underperform rating, setting a reduced target price of $3.95, implying a 32.5% downside due to valuation concerns and limited capital returns potential.
  • Despite short-term support from macro conditions and earnings adjustments, Helia faces long-term revenue challenges, with reserve releases unlikely to continue indefinitely.
  • Helia continues to experience significant negative claims due to reserve releases, but as claims reserves diminish, the ability to sustain large reserve releases is expected to decline, signalling potential normalisation in claims and impacting long-term earnings stability.

The S&P/ASX 200 Index (ASX: XJO) is trading in the red again on Wednesday afternoon. At the time of writing, the index is down another 0.17% for the day, marking a 7% sell-off from its peak in late October.

The index appears determined to continue its downward trend amid weak earnings expectations, ongoing geopolitical tensions, and growing concerns about uncertainty surrounding rate cuts. However, analysts think this might be a short-term market pullback rather than a significant correction.

But there are some shares that aren't expected to perform particularly well over the next 12 months.

In a recent note to investors, analysts at Macquarie Group Ltd (ASX: MQG) have raised concerns about one ASX 200 stock it thinks will plunge in the next 12 months.

A worried man chews his fingers.

Image source: Getty Images

Helia shares tipped to drop

At the time of writing, Helia Group Ltd (ASX: HLI) shares are trading 0.51% lower for the day at $5.85 a piece. Over the past month, its share price has increased by 6.36%, and over the year, it's 32.05% higher.

But Macquarie thinks the shares are about to start diving.

In the note, the broker confirmed its underperform rating on Helia shares and reduced its target price to $3.95 per share. At the time of writing, this implies a huge 32.5% downside for investors over the next 12 months.

"Valuation: We reduce the valuation to $3.95/share (from $4.10/share), driven by our dividend discount model as we slow down capital returns," the broker said in its note.

"While conditions are supportive near-term, at current valuations (~1.6x P/NTA), investors are both overpaying for the potential of capital returns, and have priced in favourable conditions indefinitely. Maintain Underperform."

"Earnings changes: We raise EPS by +5%/+2%/+3% in FY25-27E, as we lower claims to reflect the 3Q25 trading update and mark-to-market of the yield curves, but there are minor downgrades in outer years as we bring forward reserve releases," Macquarie said.

What else did the broker have to say about the ASX 200 stock?

Macquarie said that Helia continues to deliver large negative claims, which have been driven by reserve releases. It explained that while macro conditions support this, the company's claims reserves have decreased significantly, and has brought forward earnings. 

"We forecast the liability for incurred claims (LIC) at FY25 to close at ~$200m (vs ~$270m in FY24). Further negative claims in the near-term is possible, but as the claims reserve decreases, the scope for large reserve releases to continue indefinitely is unlikely. Even with favourable assumptions, reserving on new delinquencies will begin offsetting the reduction in claims reserves on the "back book". This underpins our view of normalising claims," the broker said.

The broker added that cutting costs is not enough to offset long-term revenue headwinds.

"Our earlier analysis suggested that even with aggressive capital returns and under a run-off scenario, we arrive at a valuation of $5/share (pre-dividends). With HLI announcing its intention to continue writing LMI and hence require capital, we pare back the speed of capital returns, and downgrade our DDM valuation despite earnings upgrades."

Motley Fool contributor Samantha Menzies 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 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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