Crunch Time For Medibank’s Direct Sales Strategy

APRA released December quarter data on the health insurance industry last month. This shows that private health insurance penetration fell for the first time in 10 years. While the percentage of Australian residents that had private hospital insurance only fell 0.1 per cent to 47.2 per cent, this will be of great concern to the Government given that falling coverage rates inevitably sees the healthcare burden fall back onto the public system.

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Medibank Private – Quality At A Reasonable Price

The big surprise from the recent reporting season was Medibank Private (ASX:MPL). Guidance suggests the health insurance operating profit will increase by more than 12 per cent in FY16 to over A$370m on revenue growth of 5.5 per cent. The company also guided to a reduction in the MER to 8.3 per cent and below 8 per cent in 2017. This is a lot better than we had forecast and the market had been of the opinion that most of the margin expansion from a falling MER had been realised.

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Is Medibank A Value Investment?

With great fanfare, Medibank Private, Australia’s largest health insurer, listed on the Australian Stock Exchange late last year. Before listing, the Commonwealth Government, as the seller of the business, gave retail investors an indicative pricing range of $1.55 to $2.00 per share. The challenge for retail investors was to assess whether or not Medibank was worth materially more than $2.00 per share – thereby ensuring a margin of safety on any potential investment.

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