Is this the best healthcare business on the ASX?

Private health insurance is in demand because people realise how costly it is without it.

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Following the money in an upturning market is one way to sniff out good investment ideas. Right now, people want more private health insurance coverage because they realise how much it can cost without it. They are willing to pay for it like regular insurance, so successful service providers can have steady business with many customers.

NIB Holdings Limited (ASX: NHF) provides private health, life and travel insurance. Its net profits have been solid over the last four years. Its FY2014 interim results showed a 20% rise in premium revenue and a 9.4% gain in net profit.

During that time, its share price has risen steadily. Just within the past six months it is up about 23% to $2.71. Its dividend yield is 3.8% and its PE is 17.6.

Product innovation

Being a low-cost health insurance provider can attract a lot of business. The company also works at offering innovative products that address what customers want.

For example, in March it announced its NIB Options cosmetic surgery and dental service that allows customers to receive treatment from highly reputable physicians in accredited facilities in Australia and overseas. It's not health insurance, but a fee-for-service product. This is one way it can add extra revenue on top of its insurance premium income.

Balance sheet

The company has about $64 million in long-term debt, but in FY2013 its net profit was $67.2 million, so its earning power is strong enough to keep it from financial stress.

Full year outlook

The company's FY2014 full year guidance is for its consolidated operating profit to be in the range of $73 million-$80 million.

Foolish takeaway

Earnings stability, a strong balance sheet and business innovation are three things that any quality company should have. In addition, good customer satisfaction can build up client loyalty, keeping business flowing in.

Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned.   

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