Medibank profit slips in "flat" insurance market
The private health insurer has lifted its market share and revenue, but says the outlook for growth in the domestic market is flat.
The private health insurer has lifted its market share and revenue, but says the outlook for growth in the domestic market is flat.
Medibank (ASX: MPL) posted a one per cent drop in full-year net profit to $445.1 million as a result of a fall in investment income.
However, health insurance premium revenue for the year to June 30 rose 1.2 per cent to $6.32 billion as a result of premium increases.
Average revenue per policy for the private health insurer increased by 1.9 per cent for the year.
"Our customer base remained stable at 3.74 million, in a market which saw industry growth continuing to slow," Medibank said in a statement.
The result fell below expectations, but operationally, the core business remains in good shape, says David Ellis, Morningstar senior equities analyst.
"Lower-than-expected investment income, a higher tax rate, and higher other expenses contributed to the 1 per cent decline in fiscal 2018 group NPAT to $445 million, about 5 per cent below our forecast and 3 per cent below consensus," Ellis said in a note published on Friday.
"Good progress in improving the underlying business impressed with the health insurance operating profit up 8 per cent to $536 million and the health services business, known as Medibank Health, operating profit up 33 per cent to $47 million."
He says its fully-franked final dividend of 7.2 cents a share was a "modest disappointment". This lifted its full year dividend to $12.7 cents a share, missing Morningstar's forecast of 13 cents a share, but still 6 per cent higher than fiscal 2017.
Medibank is close to acquiring an in-home health care business
Ellis has retained a positive view on the narrow-moat-rated stock, and a fair value estimate of $3.10.
The insurer lifted market share slightly in the second half of 2017/18 to 26.9 per cent, the first time it had recorded growth in a decade.
Medibank's customer count grew by 0.3 per cent compared to a 1.3 per cent reduction in 2016/17.
Claims paid out by the health insurer rose by $47.7 million, or 0.9 per cent, to $5.2 billion. Of those expenses, hospital claims were down slightly by about $1 million to $3.91 billion, while extras claims went up 3.9 per cent to $1.31 billion.
Dental expenses, which make up more than half of extras claims, rose three per cent, as did optical, physiotherapy and chiropractic claims, while alternative therapies claims were up 10 per cent.
Revenue for the Medibank Health division increased by 6.9 per cent, or $39.8 million, due to a 12-month contribution from its HealthStrong mobile aged care service, as well as growth in travel, life and pet insurance revenue.
The health insurer suffered a $43.7 million reduction in investment income due to lower market returns and a conservative asset allocation strategy.
Chief executive Craig Drummond said the full-year results demonstrated the core health insurance business is back on track.
He also said the company is close to acquiring an in-home health care business worth an estimated $70 million: "This is an opportunity to add scale and capability to our in-home offering, through a national in-home care business with clinical experience and capability".
The Medibank at Home division expects to more than double its customers from 936 to 2,000 in 2018/19, not including an estimation from the at home business nearing acquisition.
Management's outlook for the private health insurance market into fiscal 2019 was flat, and while Medibank aims to lift market share, CEO Drummond highlights the company is also facing higher expenses.
Morningstar's Ellis says political risks may also lie ahead for Medibank, if Labor succeeds at the next election and implements its policy of capping health insurance premium rises to 2 per cent for two years.
The average industry premium rate increase was 3.95 per cent for 2018 and Morningstar expects a lower increase effective April 1, 2019 – probably around 3 per cent levels.
Medibank's shares had fallen by as much as 5.5 per cent to $3.02 on Friday but have recovered somewhat to $3.05 today at 10:30am.
Performance highlights
* Net profit down 1pct to $445.1m
* Revenue up 1.2pct to $7.01b
* Fully-franked final dividend of 7.2cps, up from 6.75 cents
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Emma Rapaport is a reporter for Morningstar Australia.
With AAP.
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