What is happening to Medibank Private (MPL)?

by Michael Gable

Now that Medibank Private (MPL) has been listed for 6 months, we sent out a fresh research report to clients. Below is an extract.

At current levels, we can only have a neutral view on the stock. The fundamental reasons for this view are:
 
1. Given that the 1H15 revenue growth (at 5.2%) for the Health Insurance division was below market expectations, we consider that there is a risk that MPL will not meet its FY15 prospectus forecast of 6.2% revenue growth for the Health Insurance division. The Company has not downgraded this forecast in light of the 1H15 performance, likely due to the fact that the strongest sales months are May/June each year.
 
2. One of the key factors as to whether prospectus guidance for FY15 profit can be met is the extent to which MPL can control claims expenses via stronger negotiations with hospital providers, given these providers also exhibit significant scale or are not-for-profit organisations.
 
3. MPL’s P/E (on a 1-year forward multiple basis) has recently traded at a premium to peer company NIB Holdings (ASX: NHF). This premium rating has been eroded, with MPL retracing from a recent closing high of $2.56 per share (following the release of 1H15 results). At present, MPL’s 1-year forward P/E multiple is 20.5x, compared to NHF’s 20.3x.
We remain unconvinced that MPL deserves a premium rating. While MPL is a larger company (in terms of policyholders) and has a no debt (in comparison to NHF which has 17% gearing), MPL’s premium growth is trailing NHF (1H15: 5.2% compared to NHF’s 9.1%) and gross profit margins are lower (1H15: 13.9% compared to NHF’s 16.5% - both are flat).

What are the charts saying?
We only have about 6 months’ worth of charting to go off but what we can see is that MPL came back to where it listed and then bounced strongly off those levels. However, it appears to be finding some resistance at the most recent downtrend line. A strong break above that line would indicate higher levels. At the moment though price action appears fairly neutral and there doesn't appear to be a compelling reason technically to enter MPL as a trade or investment.

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Disclaimer

Disclaimer: Michael Gable is an Authorised Representative (No. 376892) and Fairmont Equities is a Corporate Authorised Representative (No. 444397) of Novus Capital Limited (AFS Licence No. 238168). The information contained in this report is general information only and is copy write to Fairmont Equities. Fairmont Equities reserves all intellectual property rights. This report should not be interpreted as one that provides personal financial or investment advice. Any examples presented are for illustration purposes only. Past performance is not a reliable indicator of future performance. No person, persons or organisation should invest monies or take action on the reliance of the material contained in this report, but instead should satisfy themselves independently (whether by expert advice or others) of the appropriateness of any such action. Fairmont Equities, it directors and/or officers accept no responsibility for the accuracy, completeness or timeliness of the information contained in the report.