nib holdings limited

NHF Details

Business Update: nib holdings limited (ASX: NHF) underwrites and distributes health insurance, life insurance travel insurance; and funeral and income protection insurance services to residents, and international students and visitors globally. The market capitalisation of the company as of 1 July 2021 stood at ~$ 2.97 billion. As per a recent announcement, ACCC has proposed to authorise Honeysuckle Health and Nib health funds (ASX: NHF) for 5 years lock-in period to form and operate health services buying group.  

Q3FY21 Financial Performance: During the period, the company’s core Australian Residents Health Insurance (arhi) business reported a net growth in total policyholders by 3.7% to 641,804, compared to 30 June 2020.The company has reported its underlying operating profit at $140.9 million for the nine months to 31 March 2021 period. It’s suspended claims during the pandemic for arhi was $59.0 million (unaudited), compared to $70.7 million in H1FY21. At the end of the period, the company reported the sales comprised of 37% direct to consumer (of which 41% are online), 38% aggregators, 17% partnerships and 9% corporate.

Revenue Trend (Source: Analysis by Kalkine Group)

Outlook: Due to COVID-19 pandemic, there is surge in market demand of insurance and healthcare treatment which could positively impact the company’s financials. The company will announce its FY21 full year result on 23 August 2021. The company expects the group UOP to increase for FY21 and be in the range of $200 million to $225 million subject to further claims experience. Further, the company expects to be profitable in FY21 in iihi with ease down of pandemic and relaxation of international travel restriction.

Key Risk: The company has experienced an impact in its International inbound health insurance (iihi) sales and travel insurance losses due to threat of COVID-19 and it still prevails.

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

Source: 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: The company has acquired license to sell health insurance in China that leads to client expansion and would be reflecting before end of FY21. As per a recent announcement, the ACCC has discontinued its proceedings against nib health funds limited. The stock of NHF is trading above its average 52-weeks' high levels of $4.060-$6.545. The stock of NHF gave a positive return of ~55.18% in the past nine months and a positive return of ~22.90% in the past three months. On a technical analysis front, the stock of NHF has a support level of ~$5.97and a resistance level of ~$6.93. We have valued the stock using a P/B multiple-based illustrative relative valuation and have arrived at a target price with a correction of low double-digit (in % terms). We believe the company can trade at a slight premium to its peer average P/B (NTM trading multiple), considering the increase in underlying operating profit, and optimistic guidance. For this purpose, we have taken peers such as Medibank Private Ltd (ASX: MPL), AUB Group Ltd (ASX: AUB), PSC Insurance Group Ltd (ASX: PSI). Considering the current trading levels and indicative valuation, recent rally in the stock price, travel restrictions and the key risks associated with the business, we suggest investors to book profits and give a 'Sell' rating on the stock at the current market price of $6.460 (as on 1 July 2021, 1:05 PM (GMT+10), Sydney, Eastern Australia).

NHF Daily Technical Chart, Data Source: REFINITIV

Cedar Woods Properties Limited

CWP Details

Pre-Sales Performance: Cedar Woods Properties Limited (ASX: CWP) is involved in property investment and developer of residential communities and commercial developments in Australia. The market capitalisation of the company as of 1 July 2021 stood at ~$545.82 million. As per a recent announcement, the company has reported its presales at ~$439 million as of 31 May 2021 driven by high performing projects. It has also experienced strong sales generated through sell-out of available lands at Ellendale and townhouses at Greville in Queensland. Therefore, the pre-sales hiked by more than 20% on the $360 million as of 30 June 2020.

Acquisition in Southwest of Brisbane: The company recently added to its Queensland portfolio by entering into an agreement to acquire a 40.7-hectare site in South Maclean, southwest of Brisbane for $ 12.5 million and expected to contribute to mid-term earnings.

Q3FY21 Financial Performance: The company reported presales contracts at ~$426 million, reflecting an increase of 17% on the previous corresponding period. It expects to settle approximately 10% of the presales in FY21 and the balance into earnings in FY22 and FY23. At the end of quarter, the company maintained a strong balance sheet, low debt and more than $94 million in undrawn capacity which could support the strategic acquisitions and fund the operations. 

Cash Balance (Source: Analysis by Kalkine Group)

Outlook: The company has upgraded its forecast FY21 NPAT to ~$32 million from previously announced $29 million, reflecting an increase of ~53% on FY20. CWP is expecting an improvement in buyer’s confidence and low interest environment which will support the company’s sales in near-term future.

Key Risk: Due to COVID-19 disruption, there is subdued in demand for property market, migration risk, employment risk that have impacted the company’s operations and the uncertainty still prevails.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: 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: The company reported a rebound in sales in Western Australia in the month of May and June 2021. As per ASX, the stock of CWP is trading above its average 52-weeks' levels of $4.750-$7.700. The stock of CWP gave a positive return of ~26.60% in the past one year and a negative return of ~2.61% in the past one month. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight premium to its peer median EV/Sales (NTM trading multiple), considering the government stimulus package, RBA low interest rates and upgraded guidance. For this purpose, we have taken peers such as Sunland Group Ltd (ASX: SDG), Ingenia Communities Group (ASX: INA), Servcorp Ltd (ASX: SRV), to name a few. Considering the expected upside in valuation, strong balance sheet position, decent growth in pre-sales, strategic acquisition of land and optimistic outlook, we recommend a 'Buy' rating on the stock at the current market price of $6.630, down by 1.193% as on July 01, 2021.

CWP Daily Technical Chart, Data Source: REFINITIV

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

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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 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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