Company Overview: Medibank Private Limited (ASX: MPL) is an integrated healthcare company that provides private health insurance and health solutions in Australia. MPL also offers other insurance, including travel, pet, and life insurance, to make things easier for its customers. The company has a partnership with leaders in the health sector – doctors, hospitals, and research institutes. The company was listed on ASX on 25 November 2014.

MPL Details 

2021 AGM Highlights: On 25 November 2021, the company held its 2021 Annual General Meeting (AGM), wherein, the management informed that during FY21, the company witnessed decent policyholder growth, an increase in market share and record customer advocacy. Some of the key points highlighted at the AGM are as follows:

• Improvement in Profitability: Driven by 14.4% YoY growth in Health Insurance operating profit and 12.9% YoY growth in Medibank Health segment profit, the company’s net profit after tax grew by 39.8% to $441.2 million.
• Rise in Policy Holders: During FY21, the company’s policyholders increased by almost 83,000 and its market share grew by 37 basis points.
• Increase in My Medibank App Customers: The number of customers who have registered to use the My Medibank app have triples in the last five years. In FY21, the company had almost 6.5 million digital or virtual health engagements with its customers.

5-Year Financial Summary (Source: Analysis by Kalkine Group)

Dividend History: The company has a track record of paying a decent dividend to its shareholders. Underpinned by solid financial performance in FY21, the company was able to pay a full year ordinary dividend of 12.7 cents per share fully franked in FY21, which is ~5.8% higher than the last year. The total FY21 dividend represents a payout ratio of 87.7% of underlying NPAT, which is marginally above the top end of the company’s target payout ratio range of between 75% and 85%. At a CMP of $3.12, the company’s annual dividend yield stood at 4.03%.

Dividend Trend (Source: Analysis by Kalkine Group)

Key Metrics: The company’s expense ratio for FY21 stood at 7.9%, down from 8.3% in FY20. Asset to equity ratio for FY21 stood at 2.06x, down from 2.08x in FY20. Debt to equity ratio for FY21 stood at 0.05x, lower than the industry median of 0.3x.

Expense Ratio Trend (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around 25.86% of the total shareholding, while the top four constitutes the maximum holding. The Vanguard Group, Inc. and Perpetual Investment Management Limited are holding a maximum stake in the company at 5.55% and 4.86%, respectively, as also highlighted in the chart below:

(Source: Analysis by Kalkine Group)

Defers Premium Increase For 5 Months: On 23 December 2021, MPL announced that it is deferring premium increases for 5 months and will return around $135 million in COVID-19 permanent net claims savings to its customers and expects that this will not impact its earnings for the 6 months ending 31 December 2021 (H1FY22).

Key Risks:

• COVID-19 Uncertainties: The company is exposed to the risks related to the uncertainties surrounding the COVID-19 pandemic as it could impact the health systems.
• Market Factor Risks: The company is exposed to the risks related to the change in the market factors like foreign exchange rates, interest rates, and equity prices.

Outlook: Looking ahead, the company is focused on achieving inorganic growth for Medibank Health and Health Insurance. The company expects the industry participation growth to be slower in FY22 relative to FY21. In FY22, the company is aiming to achieve ~3% policyholder growth, including continued growth in the Medibank brand. Further, the company has set FY22 productivity target of $15 million in Health Insurance management expenses. The company intends to release its H1FY22 results on 25 February 2022.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: Over the last three months, the stock has corrected by ~7.87%. The stock is currently trading lower than the average 52-week price level band of $2.7 - $3.74. The stock has been valued using P/E multiple-based illustrative relative valuation and arrived at a target price with an upside of low double-digit (in % terms). The company can trade at a slight discount to its peers, considering the uncertainties surrounding the COVID-19 pandemic and slower industry participation growth. For the valuation, peers such as NIB Holdings Ltd (ASX: NHF), Suncorp Group Ltd (ASX: SUN), Steadfast Group Ltd (ASX: SDF), etc. Considering the company’s decent results in FY21, rise in FY21 dividend, modest long-term outlook, current trading level, and indicative upside in valuation, we give a “Buy” rating on the stock at the closing price of $3.12 as on 3 February 2022, 12:30 PM (GMT+10), Sydney, Eastern Australia.

MPL Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and is subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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