Create Free Account

By creating account you will get access to hot stocks & personalised emails

Blue-Chip

Medibank : BUY or NOT

October 30, 2014 | Team Kalkine
Medibank : BUY or NOT

Medibank IPO

Today, we bring you the updates on Medibank Private Limited. With the A$5.5bn Medibank’s Initial Public Offer (IPO) open, applications are invited from investors willing to acquire fully paid ordinary shares. This has been extended to investors in Australia and New Zealand. Australian Government has mentioned that profits from the sale of Medibank will be used for productivity-enhancing infrastructure.

Medibank which is Australia’s largest private health insurer having a 29.1% of market share is known to offer private health insurance (PHI), Overseas Visitors Health Cover (OVHC), and Overseas Student Health Cover (OSHC) through two brands, namely, Medibank and ahm. A huge Australian population has been covered by Medibank’s PHI, OVHC and OSHC policies. More precisely, Medibank has over 1.9 million Principal Policyholders and OVHC and OSHC customers.


Financial Highlights (Source – Company Reports)

As per the expectations, Medibank forecasted to generate 90% of its pro forma FY15 revenue from its Health Insurance business and remaining 10% from Complementary Services, which generate service fees, commissions and other income from contracted health management services, online and telephone-based health services, etc.

Further, the pro forma operating profit is forecast to increase by 10.5% from FY14 to FY15. Pro forma operating profit is forecast to increase by 20.1% from FY14 to FY15 in case the effect of the non-renewal of the Immigration Contract within Complementary Services is let off. The pro forma NPAT is forecasted to be $258.2 million in FY15 showcasing a high forecast return on equity. As at 30 June 2014, Medibank had zero debt on its balance sheet, and the same is expected at least till the date of Listing. As at 30 June 2014, Medibank Private had cash and investments of $2.2 billion.


Composition of Pro Forma Forecast FY15 Revenue (Source – Company Reports)

The Health Insurance Segment is steered through acquisition and retention of Policyholders, profitable PHI products, and claim expense management etc. The Medibank brand and the ahm brand further target customers at different life stages. Specifically, the Medibank brand provides a broad and flexible health insurance cover; and on the other hand, the ahm brand is distributed through comparison websites, ahm’s website and a call centre.

Based on Medibank’s expectations, a fully franked dividend of 4.9 cents per Share is ought to be paid in September 2015 in respect of the period from 1 December 2014 to 30 June 2015. Accordingly, the FY15 dividend yield is forecasted to be of 4.2% to 5.4% based on simple annualisation; and 3.5% to 4.5% based on FY15 NPAT. 


Assets (Source – Company Reports)

The IPO being put up is most likely to be settled by 28 November 2014. Under the offer, an indicative Price Range of $1.55 – $2.00 per Share; and 2,754 million total number of shares have been put up. Further, the offer includes the Policyholder Offer open to eligible Policyholders, the Employee Offer open to eligible employees, the Broker Firm Offer open to Australian and New Zealand resident retail clients of a participating broker, and  the General Public Offer open to Australian resident retail investors. Although Commonwealth is offering to sell 100% of the Shares in Medibank, it does retain the right to sell a lesser amount of shares under the offer in view of a successful Listing, market conditions, etc.

However, there are a few key points that cannot be ignored and need to be considered before getting stuck to the IPO opportunity. There is a possibility that the strategy which Medibank is adopting backfires and impacts market share and revenues alongside bringing any reputational damage. For instance, Medibank’s strategy in contracting, or choosing not to contract, with healthcare providers is targeted to improve value for money and Policyholder quality outcomes. Nonetheless, this may lead to loss of goodwill if found ineffective. At the same time, detection and recovery of improper claims would be prudent to avoid any increase in claims expense.

Another point to ponder over is the kind of value proposition Medibank proffers to ensure satisfactory agreements being executed with healthcare providers. Failure to do this may call for poor operating results. Also, the economic and market conditions may have a bearing on Medibank’s investments. Thus, lower than expected investment returns will hit its financial performance, as a part of the net profit is contributed from Medibank’s investment portfolio itself.


Components of the Change in Pro Forma FY14 NPAT to Pro Forma FY15 NPAT (Source – Company Reports)

Private Health Industry may also be mispriced or designed inappropriately. This basically should mean that Medibank needs to always be up-and-running in forecasting correct claims expenses, price assessments, etc. Additionally, rising healthcare costs may imbalance the affordability of PHI which may result in many higher-risk Policyholders holding PHI instead of the low-risk Policyholders. At the same time, Medibank needs to ensure compliance with government policies and regulations. Any adverse change to such policies may bring a jolt to Medibank’s regular operations.

Then coming to the Medibank’s IT systems and data integrity, any damage or loss of such systems and data may harm the business extensively. In view of the broad IT renewal program, Medibank needs to be very careful in replacing the core policy and customer relationship management systems for the Medibank brand and other associated projects while maintaining the timeline and budget. This may otherwise upset the customer service and regulatory compliances.

Yet another factor which poses huge risk is the competitive environment driven by technology enhancements. For instance, use of internet for selecting and purchasing appropriate policies after a thorough comparison may impact Medibank’s financial performance.


Australian PHI Industry Premium Revenue (Source – Company Reports)

On the other hand, Medibank has illustrated some improvement in cutting down its management expense ratio. Further, the increase in healthcare expenditure, attraction towards private health cover, market leader position and strong base, and ahm brand’s emergence as the fastest growing brand (although affected by comparison websites) may tend to bring some respite to Medibank.

Nonetheless, the rush for medibank IPO and overbidding by investors is wrapping up as a mystery. We would rather wait and watch for any winners in this race as we are little speculative of the returns from the IPO at this juncture.
 



 
Disclaimer
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people.
Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376).
The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation.
Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product.
The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide.
 
Blue-Chip
An Update on One NASDAQ- Listed Online Services Stock – Alphabet Inc
November 22, 2024Team Kalkine
Blue-Chip
One Internet Services & Infrastructure Stock Near Resistance Levels – SNOW
November 22, 2024Team Kalkine
Small-Cap
One NYSE: Listed Renewable Energy Stock at Resistance Level: Sunnova Energy International Inc
November 22, 2024Team Kalkine
Blue-Chip
One NASDAQ- Listed Renewable Energy Stock at Decent Support Levels– First Solar Inc
November 22, 2024Team Kalkine
Small-Cap
One NASDAQ- Listed Movies & Entertainment ADR Under Radar- iQIYI, Inc
November 22, 2024Team Kalkine

Get In Touch

By submitting your details and clicking on the Register button below, you agree to Kalkine’s Terms and Conditions and agree to receive marketing offers, including to be contacted by email or phone, as set out in our Privacy Policy. Any calls will be made by Kalkine Pty Ltd or Kalkine Solutions Private Limited on our behalf.You also agree that Kalkine/KSPL can give you its Financial Services Guide by electronic means (including by website link or email). Before accessing our services, please read the Financial Services Guide available here.

Please wait processing your request...

Our Company

Useful Links

Contact Us

ISO Certified Market Research

Kalkine Solutions Private Limited, authorized representative of Kalkine Pty Ltd, holds ISO 27001:2022 certification bearing Certificate No.- IC-IS-2404072

Our Company

Useful Links

Contact Us

Disclaimer

The information given by Kalkine Pty Ltd ABN34 154 808 312 (Australian Financial Services License Number 425376) on this website is general information or advice only.

It does not take into account any of your personal objectives, circumstances or needs. Choosing an investment is an important decision. If you do not feel confident making a decision based on the recommendations Kalkine has made in our reports, you should consider obtaining personal advice from an authorised adviser.

There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. Terms & Conditions have been provided for our services, please go through them and also read our Financial Services Guide.

Our website may contain information on past performance of particular investments. Past performance is not an indicator of future performance. Hypothetical returns may not reflect actual performance. Any displays of potential investment opportunities are for sample purposes only and may not actually be available to investors.

The information on the website does not constitute an offer to sell securities or a solicitation of an offer to buy securities. Our reports contain general recommendations to invest in securities.

Copyright 2024 Krish Capital Pty. Ltd. All rights reserved. No part of this website, or its content, may be reproduced in any form without our prior consent.