A phenomenal amount of words have been written about the Medibank Private Ltd (ASX: MPL) IPO. The second-largest ever privatisation of an Australian government asset has been well covered by most local and many international brokers as well as many news publications. It's divided opinion like such a large float should.
Opening Trade
$5.7 billion worth of shares started trading at midday on Tuesday at $2.22, 11% higher than the $2 price paid by retail investors. 60% of shares on offer were sold to retail investors, 23% to local institutions, and 17% to international institutions.
The hot question is at what price are most investors willing to sell at? I have listened to a few fund managers say that they will be selling between $2.30 and $2.40, equating to a price to earnings range of 24.5 to 25.5. For comparison, listed rival NIB Holdings Limited (ASX: NHF) trades on a forward PE ratio of around 19 times.
Future Profits?
At the current price of around $2.10, I find it hard to believe that investors will receive much medium-term growth. Medibank may be able to reduce costs to boost margins and earnings, but the company's significant investment portfolio is expected to return less than in previous years, making management's job difficult.
Investors shouldn't expect a massive dividend yield either. The group will pay its first dividend in September 2015 of 4.9 cents per share, or just 2.2% fully franked (3.2% grossed up).
Selling Price
Investors really shouldn't be trying to time the market and Foolish investors will only have invested in Medibank if they believe that the long-term view is positive. I believe that other insurance companies, including QBE Insurance Group Limited (ASX: QBE) and even Insurance Australia Group Ltd (ASX: IAG) offer better risk vs return profiles over the long run.
