Medibank Private Limited

 

MPL Details
 
Rising Policyholder Numbers & Cost-Cutting Initiatives are Key Positives: An integrated healthcare company, Medibank Private Limited (ASX: MPL) is engaged in providing private health insurance policies and health solutions to around 3.7 million Australians. On 15^th January 2020, the company announced that Perpetual Limited and its related bodies corporate, one of the substantial holders of the company, has reduced its voting power from 8.34% to 7.31%. The company also notified that H1 FY20 results will be announced on 20 February 2020.
 

Shareholding Update (Source: Company Reports)
 
Medibank to Modify Premium from 1st April 2020:Private health insurance premiums are set to witness a change effective from 1^st April 2020 as per the Federal Minister for Health. Following this, Medibank received a nod to increase the Medibank and ahm health insurance premiums by an average of ~3.27%, which is the least hike in the past 19 years. 
 
Revised Outlook for FY2020: Recently, the company updated its full year 2020 outlook. The company now expects FY20 management expensesto be ~$545 million. The company remains on track to reach the set objectives and stabilise the brand policyholder volumes by FY20 end. This momentum is expected to continue in FY2021. Additionally, the company expects a rise of claims per policy unit throughout FY20. The expected increase will come on the back of higher private hospital payments. Medibank Private Limited is also aiming for $20 million in productivity savings in 2020, with additional $30million by the end of 2022.
 
 
Valuation Methodology: P/CF Multiple Approach
 

P/CFBased Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: As per ASX, the stock is trading above the average of its 52-week low and high of $2.532 and $3.654, respectively. The stock gave a return of 25.03% in the past one year. As per ASX, the stock has a market cap of $9.06 billion with a PE multiple of 19.7x and an annual dividend yield of 3.98%, suggesting a decent opportunity for accumulation. We have valued the stock using P/CF based relative valuation method, and for the said purpose, we have considered peers like NIB Holdings Ltd (ASX: NHF), QBE Insurance Group Ltd (ASX: QBE) and Insurance Australia Group Ltd (ASX: IAG), to name few.Therefore, we have arrived at a target price, which is offering an upside of higher single-digit (in percentage terms). Considering the decent outlook, anticipated productivity savings, and current trading levels, we give a "Hold" recommendation on the stock at the current market price of $3.210 per share,down 2.432% on 20^th January 2020.

 
MPL Daily Technical Chart (Source: Thomson Reuters)

 
NIB Holdings Limited

 

NHF Details
 
Revised Outlook for FY2020: NIB Holdings Limited (ASX: NHF) is involved in distributing and underwriting private health insurance to residents in Australia and New Zealand along with visitors to Australia, and international students. On 20^th January 2020, the company updated its full-year 2020 outlook. The company now expects group underlying operating profit (UOP) to be at least $170 million (and statutory operating profit of at least $150 million). The guidance was given on the back of rise in claims expense across several underwriting business lines. The company also stated that risk equalisation net contribution in FY20 is now predicted to be approximately $250 million. The company also notified that H1 FY20 results will be announced on 24 February 2020.
 

2020 Financial Calendar (Source: Company Reports)
 
Managerial Changes: On 23^rd December 2019, the company announced that Michelle McPherson, Chief Financial Officer (CFO) and Deputy Chief Executive Officer of the company has stepped down from the post to take on another CFO role.
 
As per another notification, post the nod from Federal Minister for Health, the company would be raising insurance cover premiums for all products by an average of 2.90%, effective from April 1, 2020. 
 
NHF Enters intoJoint Venture with Cigna: The company recently announced a joint venture initiative with Cigna Corporation. The move will witness each party contributing AUD$10 million towards start-up funding.The joint venture would be led by Rhod McKensey, who has been the Group Executive of nib's Australian Residents Health Insurance (arhi) business since 2013.
 
Valuation Methodology: P/CF Multiple Approach
 

P/CFBased Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: As per ASX, the stock is trading below the average of its 52-week low and high of $5.090 and $8.2, respectively. The stock gave a return of 25.53% in the past one year. As per ASX, the stock has a market cap of $2.98 billion with a PE multiple of 19.88x and an annual dividend yield of 3.52%, suggesting a decent opportunity for accumulation. We have valued the stock using P/CF based relative valuation method, and for the said purpose, we have considered the peer group - IOOF Holdings Ltd (ASX: IFL), Platinum Asset Management Ltd (ASX: PTM) and Insurance Australia Group Ltd (ASX: IAG). Therefore, we have arrived at a target price, which is offering an upside of higher single-digit (in percentage terms).  Considering the price movement, favourable valuation and current trading levels, we give a "Buy" recommendation on the stock at the current market price of $5.710 per share, down 12.691% on 20th January 2020, due to revised guidance for FY2020.

 
NHF Daily Technical Chart (Source: Thomson Reuters)

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