NIB Holdings Limited

Acquisition of Travel Business: NIB Holdings Limited (ASX: NHF) works as a private health insurer in Australia and New Zealand, whereby it underwrites and distributes private health insurance to ANZ residents as well as international students and visitors to Australia. The market capitalisation of the company stood at ~A$3.54 Bn as on 12^th August 2019. Recently, the company, via a release announced that Mr. Mark Fitzgibbon has made a change to his holdings in the company by disposing 80,000 direct ordinary shares at the total consideration of $532,646.24 on 21^st May 2019. The company also wrapped up the purchase of QBE’s travel insurance business. The acquisition of the travel insurance business includes the distribution and claims capability of QBE Travel. The business will be re-branded to nib Travel and new policies issued will be underwritten by AXA XL. Additionally, it was mentioned that the final purchase price is $24.2 Mn, which reflected the level of business generated. The company further added that one-off transaction and integration costs are anticipated to be around $11Mn as well as amortisation of related identifiable intangibles are anticipated to be around $2 million annualised.

The acquisition of QBE’s travel insurance business would also witness nib Travel becoming the exclusive travel insurance partner of Qantas throughout ANZ. In 1H FY19, the net investment income was impacted by the soft equity performance in the company’s growth portfolio. It witnessed a rise in finance costs because of acquisition of GU Health. Additionally, it also reported a decline in gearing ratio, which represents a rise in retained earnings as part of planned organic capital accumulation.


Capital Metrics (Source: Company Reports)

What to Expect: With respect to 2021 value proposition and in lieu of supporting its members, the company is selecting a level of financial protection more in keeping with their individual risk profile. It is planning to improve their health literacy and behaviour with information and tools relevant to their risk profile and health objectives as well as it is planning to transact with healthcare providers and system.

The company is expecting statutory operating profit of at least $178 million and one-off transactions and M&A costs are expected to be around $7.7 million.Adding to that, the company is projecting an underlying operating profit of around $195 million. However, the company is expecting net margins to be in the target range of 5%-6% from FY20 with some risk associated with 2x2 proposal. The company is planning expansion into other foreign markets for students.
The company recently updated that it will release the financial results for the full year ended 30 June 2019 on 19 August 2019.

Stock Recommendation: The company has a number of levers available to navigate any potential changes, including lower dividend payout ratio, organic capital accumulation, and retention of capital through any dividend reinvestment plan. It added that the current internal capital targets and capital levels meet current APRA and RBNZ expectations. The company reported an asset to equity ratio of 2.37x in 1H FY19 in comparison to the industry median of 4.72x. It posted a debt to equity ratio of 0.39x in 1H FY19 as compared to the industry median of 0.20x. As per ASX, the stock of NIB Holdings Limited is trading closer towards 52-week higher level of $8.20 and, as a result, there are expectations that the stock might witness some correction in the near term. Hence, in view of aforesaid facts and current trading levels, we give an “Expensive” recommendation on the stock at the current market price of $7.740, down 0.514% on 12 August 2019. 

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