Medibank Private Limited

MPL Details

1HFY21 Financial Highlights: Medibank Private Limited (ASX: MPL) provides private health insurance and health solutions. Health Insurance segment offers private health insurance products, including hospital cover and ancillary cover. The company has registered an increase in its revenue to $3,442.2mn in 1HFY21 against $3,421.5mn in 1HFY20. MPL has posted an increase in its NPAT to $226.4mn in 1HFY21 against $178.6mn in 1HFY20.  MPL has seen a decline in its cash position to $606.2mn as on 31 December 2020 against $871.4mn as on 30 June 2020.

Cash Position (Source: Company Reports)

Key Dates Announced: MPL has announced the key dates for the announcement of its FY21 results and dividends. The company will be announcing its FY21 results on 25 August 2021. The ex-date for dividend will be on 8 September 2021 and the payment date of dividend will be on 30 September 2021.

Key Risks: The company requires regulatory approvals to carry out its business efficiently. Any delay in regulatory approval may result in liabilities for the company. The company may see an impact on its profit margins with a severe movement in Interest rates.

Outlook: MPL is focusing on expanding its market share through achieving a growth in its policyholders in excess of 3% in FY21. The company forecasts its annualised average net claims expense per policy unit for 2HFY21 to be in line with 1HFY21 at ~2.6%. MPL expects its management expenses to be around $530mn for FY21. 

Valuation Methodology: P/E based Relative Valuation Method (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, 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 stock of MPL gave a return of ~5.80% in the last one month and a return of ~8.01% in the last three months. The current market capitalisation of MPL stands at ~$8.34bn as of 24 May 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$2.45-~$3.13. On the technical analysis front, the stock has a support level of ~$2.71 and a resistance of ~$3.33. We have valued the stock using the P/Earnings multiple-based illustrative relative valuation method and arrived at a target price with a correction of low single-digit (in % terms). We believe that the company can trade at some discount as compared to its peer average, considering higher tax expenses in 1HFY21 and decline in cash position as on 31 December 2020. For this purpose, we have taken peers PSC Insurance Group Ltd (ASX: PSI), Steadfast Group Ltd (ASX: SDF), NIB Holdings Ltd (ASX: NHF) to name a few. Considering the stock’s decent returns in the past months, current trading levels, associated business risks, and valuation, we suggest investors to book profits and give a “Sell” rating on the stock at the current market price of $3.10, up by ~2.31% as on 24 May 2021.

MPL Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Virgin Money UK PLC

VUK Details

Posted a Subdued Operating Income: Virgin Money UK PLC (ASX: VUK) offers a range of banking services for both retail and business customers through retail branches, business banking centers, direct and online channels, and brokers. VUK has registered a decline of 4% YoY in its Net Interest Income (NII) to £646mn in 1HFY21 against £671mn in 1HFY20 due to decline in business and personal lending. Moreover, the company has seen a decline in its non-interest income to £49mn in 1HFY21 against £96mn in 1HFY20, decline of 49% YoY mainly on the back of impacts from Covid-19. The total operating income declined by 9% YoY to £695mn in 1HFY21 against £767mn in 1HFY20.

Operating Income (Source: Company Reports)

Latest Shareholding Update: As per the company reports on 18 May 2021, the director of the company Mr. Clifford Abrahams has purchased additional ordinary shares. Mr. Abrahams bought 25,000 ordinary shares at the price of £2.011 on 17 May 2021 through London Stock Exchange (LSE).

1HFY21 Financial Highlights: The company has registered a decline in its Net interest Income (NII) to £646mn in 1HFY21 against £671mn in 1HFY20. VUK has registered an increase in profit to £80mn in 1HFY21 against £22mn in 1HFY20, mainly on the back of lower impairment losses. The company has seen an improvement in liquidity, with cash increased to £10,441mn as on 31 March 20201 against £9,107mn as on 30 September 2020.

Key Risks: The company requires regulatory approvals to carry out its business efficiently. Any delay in regulatory approval may result in liabilities for the company. The company is engaged in lending money, any borrower fails to meet obligation to pay back the principal or interest may result in a financial loss for the company. 

Outlook: VUK has provided outlook and guidance for its FY21 results. The company expects its net interest margin to be ~160bps for FY21. The company has restarted a structural hedge program, which is likely to benefit NII of ~£25mn in FY21 and ~£60mn in FY22. The company expects CET1 ratio to resume to surpass 13% at FY21.

Stock Recommendation: The stock of VUK gave a return of ~10.51% in the last one month and a return of ~18.32% in the last three months. The current market capitalisation of VUK stands at ~$5.35bn as of 24 May 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$1.255-~$3.770. On the technical analysis front, the stock has a support level of ~$2.77 and a resistance of ~$4.171. Although the company has been a consistent performer and value generator for the investors, the current price might have discounted most of its positive developments. Hence, considering the aforesaid facts, a decline in net interest income in 1HFY21, and current trading levels, we suggest investors to book profits and give a “Sell” rating on the stock at the current market price of $3.68, down by ~1.076% as on 24 May 2021.

VUK Daily Technical Chart (Source: Refinitiv, Thomson Reuters) 

Note: 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.

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