Stocks We Like – Medibank Private
Medibank Private (MPL) is not a company whose activities need to be described here. Most readers are privately insured and the largest provider is MPL, so you know who the company is and what it does. The investment thesis that saw Montgomery purchase shares in the float, and its investors subsequently profit from, was relatively simple (although the analysis and valuation work was not).
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Gav J
:
Hi Roger, do you have any concerns about the hospital utilisation growth increasing further from the recent slowing as per MPL guidance on this? RHC and HSO seem unperturbed by the recent slow down, and the MPL CEO said in the conference call that generally when private hospitals build new beds they tend to fill them up. I am cautious that at some point in the medium-term MPL may not be able to keep up with this growth in costs. That being said, it will likely effect all industry participants so we may see more industry consolidation at that point that benefits MPL. So perhaps still a win-win long-term future for both MPL and private hospital operators, despite sitting on opposite sides of the table?
Roger Montgomery
:
Pricing flexibility, another important variable, has been reinforced in todays announcement. I note the following from our senior analyst Stuart Jackson’s report on the announcement:
“The Minister has released the average premium increases for each insurer from 1 April 2016. This was the first of number of short term regulatory announcement risks facing the private health insurers.
The good news for MPL and NHF is that the fear of constrained premium growth due to tighter regulatory intervention will have dissipated for the time being given the Minister’s approval of an average 5.64% and 5.55% increases in premiums respectively. The MPL increase was above the assumption used in our model of 5%, and means that gross margin improvement is likely to continue in 2H16.”
Tristan Harrison
:
Interesting analysis Roger, thank you for writing this.
Do you also like NIB/NHF or do you like them less so?
I’m also interested on your thoughts on not-for-profit health funds who (similarly to industry super funds) are usually cheaper. If premiums continue to rise above inflation, why won’t the NFP health funds become more of a factor to Medibank and NIB?
Tristan