With Medibank continuing to return money to customers and the low-interest-rate environment, we don’t see any explosive catalysts for share price returns. MPL seems slightly overvalued at its current price. At the current time, we think MPL shares are in range and we won’t be buying.
Should I Buy Medibank Shares?
Should I Buy Medibank Shares Price
Looking at Medibank’s share price we can see their share price didn’t seem as impacted as other Australian shares. They have since had a more “U-Shaped” recovery and are yet to reach all-time highs.
Their share price has been relatively flat, up only 8.42% over the last five years. In the previous 12-month their share price has gained 12.54% which is unimpressive compared to markets return of 21.73% in the last year. And our portfolio’s return of around double the market and up over 40%. View our portfolio here.
Medibank’s 52-week share price range is $2.45-3.39. Their current market cap is $9.1 Billion.
Should I Buy Medibank Shares: About
Medibank is Australia’s leading private health insurer, servicing more than 3.7 million customers through their Medibank and ahm brands, and distribute travel, life, and pet insurance.
They command over 27% of the Australian health insurance market.
Medibank also provides a range of health services in Australia including mental health support, preventative and better-integrated primary, care and after-hours health support.
The group was originally government-owned before becoming privatized. In 1976 the Australian Government established Medibank Private as a not-for-profit private health insurer, operated by statutory authority the Health Insurance Commission.
In 2006-2007 the group began to expand by adding travel, pet, and life insurance policies. In 2009 they acquired AHM and became a for-profit organization. The group was later privatized and listed via IPO in 2014 at $2 per share.
Medibank group operates under two subgroups:
Private Health Insurance:
Medibank offers private health insurance products that include standalone hospital cover or extras cover, or packaged products that combine the two.
They operate under two brands: Medibank and ahm.
Health Services:
Medibank provides a range of services including health management and telehealth services for government and corporate customers, and the sale of travel, life and pet insurance products.
Medibank Shares Dividend History
MPL shares typically announce a dividend with the release of its half-yearly results in February and full-year results in August as seen in their financial calendar. Dividends are typically paid twice a year, in March (Interim Dividend) and September (Final Dividend).
We can see Medibank group have been incrementally increasing their dividend year-on-year until the COVID crash.
In fact MPL shares have paid a dividend every year since 2015. This includes the COVID recession. MPL shares pay dividends that are fully franked. The current average yearly dividend for MPL shares is $0.121 giving them a net yield of 3.64% or a gross yield of 5.21% at the current share price.
Goldman Sachs Estimates:
Goldman Sachs estimates Medibank will pay out 12.6 cents per share for FY21, which would equate to a final dividend of 6.8 cents per share. This would give MPL shares a net yield of 3.81% based on current pricing.
MPL’s current dividend payout ratio is 92%. We expect their dividend payout ratio to return to a more modest 84% this year.
2021 Final Dividend Payment Dates
- Ex-dividend Date: Wednesday 8 September 2021
- Payment Date: Thursday 30 September 2021
Should I Buy Medibank Shares For Their Dividend?
Based on their current yield Medibank Private does have a decent dividend yield of 3.64%, or a grossed up 5.21%. This seems attractive compared to the average term deposit yield of 0.4%. And is above the current ASX 300 market average gross yield of 3.24%.
We will never purchase a company based solely on their dividend as this is often not a reliable metric for overall performance. Not all dividend stocks are solid investments.
A massive dividend yield can be a red flag as it may be altered due to a massive fall in share price, poor prospects, or a special one-off dividend. For this reason, it is important to consider the business as a whole.
Another high dividend stock that we like is CBA. CBA has a gross yield of around 4.25%, and a strong balance sheet to support this. You can have a read of our CBA dividend report here.
Should I Buy Medibank Shares: Investor Sentiment
After surveying 188 Investors about their current MPL shares sentiment: BUY-HOLD-SELL, as well as their target price over the next 12-months here are the results;
The results from this survey show there is currently no real strong investor sentiment on MPL shares. So how much are MPL shares worth? Let’s get into it.
Fundamentals
| Market Cap | $9,143,290,757 |
| Shares Issued | 2,754,003,240 |
| ASX Rank | 57 |
| PE | 25.34 |
| EPS | $0.131 |
| Volume 4W Avg | 7,054,101 |
| VWAP | $3.325 |
| PEG | 5.7x |
| NTA per Share | $0.52 |
| ROE | 19.5% |
| Debt | $0 |
| Equity | $1.865 Billion |
Based on their current share price we can see MPL shares have a PE of 25.34x, which is still above the current inflated average of 20.8x. A company with a high PE could be seen as overvalued or that investors are expecting large growth in the future. They can also be seen as riskier.
Currently, MPL shares sit in the high PE band.
PE 20+: The company is overvalued/has high investor sentiment regarding growth
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Market Cap:
Medibank is a mid-cap company with a total market capitalization of just over $9 Billion. This places it as the 57th largest listed ASX company by market cap. For a company of this size, we expect to see an established company in the process of expanding in industries that are expected to experience rapid growth. Because they don’t tend to be as established as large-cap companies, they generally involve a higher level of risk.
Beta:
Medibank Shares current Beta is 0.62. Beta is a measure of a stock’s volatility in relation to the overall market. Lower Beta stocks are said to be less risky but provide lower return potentials, Source: Investopedia.
Earnings, Debt, and NTA per Share:
We can see Medibank shares currently have earnings per share of 13.1 cents, this gives it its currently inflated PE of 25.34x. Their dividend does seem sustainable and is well backed by earnings and capital. Medibank is completely debt-free. We like companies with low-to-no debt.
Their current Net tangible Assets per share is $0.52, meaning over 15% of their share price is backed by tangible assets. This is a solid result but we would like to see this slightly higher for an Insurance/Finance company.
Market Liquidity:
Medibank being a mid-cap company poses no real risk of market liquidity in my opinion. There seems to be a healthy number of buyers and sellers, in the current market.
Should I Buy Medibank Shares: Fundamental Comparison
Medibank’s most comparable businesses are QBE, Suncorp, and NIB Holdings. We can see that QBE is currently loss-making due to its negative PE ratio.
Compared to NIB holdings, MPL seems to represent a better valuation with a cheaper PE, greater asset backing, and also a larger ROE.
MPL and Suncorp appear pretty similar in terms of valuation. We can see Suncorp has a much larger backing which is typical for a bank. They do however have a much lower ROE.
Should I Buy Medibank Shares Financials
In February MPL released their Half-Yearly report to the market here are the highlights:
- Operating profits of $255.2 Million (Up 16.6%)
- NPAT of $226.4 Million (Up 26.8%)
- Lower Corporate expenses reflecting MPL’s tight expense management plan
- $310 Million balance sheet liability for deferred COVID-19 claims
- Health Insurance operating margins of 7.7% (Increased up 90bps)
- MPL is well-capitalized to meet APRA standards, Interim Dividend Announced of 5.8cps, representing a payout ratio of 79%, 75-85% expected for the full year.
- Medibank commands a 27.22% market share, which has increased 28bps in the previous 6 months
“Today we have delivered a high-quality result underpinned by strong policyholder growth”
Income Statement
We can see from Medibank’s most recent Full Year Report (2020), revenues have marginally increased from $6.6B to $6.77B representing an increase of only 1.7%. We can see that Medibank’s Health insurance business is obviously the main arm bringing in over 96% of the group’s revenue. Although we can see their health services revenue jumped 16%.
The group has managed to maintain low expenses and finished up the year with an NPAT of $315 Million. This is a reduction of 31%. These results are largely attributed to an increase in claims.
Balance Sheet
The group has managed to grow its strong cash position with $871.4 Million. We can see their Current assets and Total assets have remained relatively constant. Their cash seems to have originated from the liquidation of financial assets. We can see the group’s claims liabilities have increased significantly in 2020.
Medibank finishes the year up with $1.8 Billion in net assets, which has fallen 6.3% from the previous year.
Cash Flow Statement
We can see MPL paid out 429.6 Million in dividends to shareholders in 2020.
Technicals
The general consensus within the Technical Analysis community is currently Bullish on MPL shares. The moving averages and Technical Indicators seem to indicate a Strong Buy.
In summary, the short-term upside is likely to prevail as long as $3.22 is supported. The alternative scenario is that a downside breakout of $3.22 would call for $3.15 and $3.10.
Here’s A Breakdown Of The Detailed Technical Factors;
| Name | Value | Action |
|---|---|---|
| RSI(14) | 71.979 | Buy |
| STOCH(9,6) | 89.187 | Overbought |
| STOCHRSI(14) | 88.484 | Overbought |
| MACD(12,26) | -0.640 | Sell |
| ADX(14) | 26.843 | Buy |
| Williams %R | -5.480 | Overbought |
| CCI(14) | 104.3714 | Buy |
| ATR(14) | 0.1436 | Less Volatility |
| Highs/Lows(14) | 0.2436 | Buy |
| Ultimate Oscillator | 76.115 | Overbought |
| ROC | 4.157 | Buy |
| Bull/Bear Power(13) | 0.4660 | Buy |
Support and Resistance Graph
Insider Ownership and Trading
We can see that the general public and institutions own the majority of Medibank Private shares. This is a common trend amongst most listed shares. We can see individual insiders have very small ownership of 0.2%.
We generally like companies with large insider ownership. Skin in the game helps ensure the management’s motives are in line with ours. For large-cap companies’ insider ownership will be lower, 3-5% would be decent in this case.
The lack of insider ownership may seem like a red flag, however, it is important to recognize that MPL is an ex-government-owned business that has been privatized. We see that all privatized companies have the same proportion of ownerships as MPL, this includes CBA, TLS, TAH, QAN, SYD, SUN, and CSL.
Insider Trading:
There has been no trading by individual insiders in 2021.
| Date | Action | Value | Name | Shares | Max Price |
|---|---|---|---|---|---|
| 11 Feb 21 | Buy | AU$0 | BlackRock, Inc. | 12,752,221 | AU$3.07 |
| 10 Feb 21 | Sell | AU$134,572 | BlackRock, Inc. | 13,051,560 | AU$3.07 |
Premium Relief: Medibank to return money to Customers
In late June MPL released another update as it returns $105 Million to customers through its premium relief program. This whopping $105M makes up part of the total $300 Million that is being returned to customers.
This huge amount of cash is being returned after COVID-19 restrictions limited the customer’s ability to use their health insurance, meanwhile, MPL was still collecting big premiums.
The fund was required by the industry regulator to hold funds in order to be able to pay for an anticipated catch-up in elective surgeries after COVID-19 restrictions were lifted.
With the normalization, MPL was still left with a large pile of money it is now returning.
Earlier on I mentioned that MPL claims liabilities have increased significantly in 2020, with them holding around $600m on their balance sheet. This is where the money to be returned is classified. As such we won’t see further losses on the balance sheet as it is already accounted for.
Medibank CEO David Koczkar
“We said right from the start of the pandemic that we would not profit from COVID-19, and that we were
committed to returning any COVID-19 savings back to our customers because it is the right thing to do”
Should I Buy Medibank Shares: Future Prospects
Over the course of 2020, MPL managed to grow policyholders by 49,000, which is massive for the countries biggest health insurer who has a stake of over 27%.
By promising to return all permanent net claims savings due to COVID back to their customers they have proven to have improved retention of customers dramatically.
It’s no surprise that the group’s travel insurance will continue to suffer until the return of a post-COVID normal. However, with this business being such a small part of MPL, revenues will not be impacted meaningfully.
The Investment income of the fund has dropped off and will continue to remain low with interest rates, and lower markets overall.
The group recently diversified into ahm car and home insurance products launched in January 2021. We expect to see slow uptake initially. But over the long run, this will be a good move by MPL.
Should I Buy Medibank Shares: Prophet’s Take
Medibank’s share price has remained stagnant over the last five years. The company has a decent balance sheet but in terms of the balance sheet, they do seem overpriced both in terms of assets and earnings.
With the company continuing to return money to customers and the low-interest-rate environment, we don’t see any catalysts for massive earnings or share prices for the group.
At the current time, we think MPL shares are in range. We don’t see them as a high conviction stock to add to our market-beating portfolio.
Please Remember all Articles Published on Prophet Invest are Opinion Only
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