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.
Notify us for the full copy of the report.
