Medibank Private Ltd (ASX: MPL)

MPL Details

Boost expected from private health insurance (PHI) reforms:Medibank Private Ltd.’s stock surged up about 2% on October 13, 2017 with the boost to the health insurer based on the private health insurance (PHI) reforms in terms of premium rises. Primarily, health insurance reforms as signalled by the Federal Government are seen to include lowering of premiums, particularly, for younger Australians. A series of discounts of up to 10% is the key highlight for people under 30. This move is expected to curtail the growing reluctance by many people to opt for private health insurance considering financial pressures, and seem to provide some respite to players like Medibank. Meanwhile, the group reported for FY17 NPAT growth of 7.6% to $449.5m while revenue from ordinary activities were $6,948.1m, up 0.8% over last year. However, the group had earlier indicated for a subdued outlook. Given the healthcare insurance reforms, MPL might be able to avail benefits; however, we believe that a wait and watch approach may be adopted to see the group benefiting from the changes. We maintain an “Expensive” recommendation at the current price of $3.10


MPL Daily Chart (Source: Thomson Reuters) 

NIB Holdings Ltd (ASX: NHF)

NHF Details

Reforms not expected to have an immediate impact upon FY18 guidance: NIB Holdings also hailed the Government’s PHI reform measures announced by Health Minister Greg Hunt and this is said to be a major step towards improving the consumer experience and premium affordability. The reforms are said to be dealing with the systematic overpricing of medical devices while attracting more young people to private health insurance. It has been particularly mentioned that patients in private hospitals pay wildly inflated prices (sometimes about five-times what it costs in the public system) for medical devices. The group has also stated that nib and other insurers had made iron clad undertakings to the Minister to pass on reduced medical device prices to policyholders in the form of lower than otherwise premiums.
 

Earnings and dividends (Source: Company Reports)
 
On the other hand, the proposed changes to product classification (Gold, Silver, Bronze and Basic) are not expected to have a material impact with nib’s existing “on sale” product range already designed and stamped to reflect the level of cover, such as Top Hospital, Mid Hospital and Basic Hospital. However, the group does not expect the changes to have any immediate impact upon its FY18 guidance with further medical device pricing reductions to occur over two years and not start until April 2018. NHF had earlier indicated to have soft earnings for FY18 given the investments in World Nomads Group. Further, the group’s acquisition of Grand United Health for $155m is not expected to be of a significant value considering the debt scenario. We maintain an “Expensive” recommendation at the current price of $6.07


NHF Daily Chart (Source: Thomson Reuters)

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