Why Is The Market Bearish On Medibank Private Ltd (ASX: MPL)?

  • Mar 23, 2019 AEDT
  • Team Kalkine
Why Is The Market Bearish On Medibank Private Ltd (ASX: MPL)?

Private health insurance provider, Medibank Private Ltd (ASX: MPL) seems to be on the sell-list of the investors with the bears having carved out more than 4% from the value of the stock in just past one month, taking the performance of the stock to -11.22% over the past one year.

The negative momentum in the market seems to be driven by Medibank’s bleak half-year results as the Group’s Net Profit After Tax (NPAT) declined by 15.4% to $207.7 million for the six months ended 31 December 2018. This compares to the Group’s 1HFY18 NPAT of $245.6 million.

Medibank explained that the reduction in its profit was primarily driven by the plunge in Net Investment Income which fell straight from $59.7 million in 1HFY18 to $4.1 million in 1HFY19 due to lower equity and credit market returns.

Besides the financial aspect, the market environment does not seem to favour Medibank. It is because the Australian Government Department of Defense has not approved the company’s tender to renew its Garrison Health Services contract.

Medibank, now, will have to discontinue its Garrison Health Services operation from the date of contract expiry, i.e., 30 June 2019. This contract aimed at providing healthcare services to the Australian Defense Force (ADF) which generated approximately $30 million alone in operating profit during the Fiscal Year 2018. But it would no longer be seen going forward, adversely affecting the Group’s overall revenue.

However, the company firmly stated that it had drawn a new milestone to organically substitute the contribution from Garrison Health Services contract by 2022. The company intends to achieve this target through improving its scale of operation and capability in its existing business.

In the 2019 half-yearly report, Medibank hinted its expectation of subdued growth in Hospitals and extras utilisation segments with overall flat market volumes in health insurance over the coming period. Further, the company expects its management expenses for the full Fiscal year 2019 to be marginally above than the previous corresponding period.

On the current policyholder trajectory, it anticipates its brand volumes to stabilise by the end of full-year 2020. But the company eyes the entire 2020 as a challenging year to operate which could potentially harm the company’s volume growth.

However, the company has planned to maintain the rate rise environment to the lower level and observe further reform as required to promoting industry sustainability. In this environment, the company aims to chase its volume growth while maintaining reasonable margin and retaining tight control over its cost management.

MPL last traded at $2.700 with a price to earnings multiple of 18.180x and a market capitalisation of $7.41 billion as at 22 March 2019. The YTD return of the stock stands at 7.60%.

Investors may wish to monitor the stock to judiciously undertake any position in the stock.


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