Healthcare business NIB Holdings Limited (ASX: NHF) shares sunk around 8% today after it advised that it will be at the lower end of the previously published range for FY14 consolidated operating profit of $73 million to $80 million.
The shares have been on a red hot run over the last year as investors bet NIB will be a beneficiary of the trend towards private healthcare, particularly since the election of a new federal government. It's likely profit-taking contributed to the sell off and it will not be a surprise if the price comes under further pressure tomorrow.
NIB's aim is to grow its Australian residents health insurance business organically alongside around a 10% annual premium growth. The target markets, or 'tactical opportunities' for the organic growth are the under 40s and over 55s age groups. The under 40s market is a notoriously tough one though, with many younger Australians happy to save some cash and hang their hats on the public health service.
New Zealand is also seen as growth market to be developed, while the group also wants to grow its medical travel business and insurance offerings for students and international workers.
At today's investor meeting NIB also reported that as at June 30, 2014, it had $50 million to $60 million in available capital above targets, with that available for distribution to shareholders either through a special distribution or share buyback. The business already yields a decent 3.27% based on analysts' forecasts for a payout of 10 cents per share in 2014.
Selling for $3.05 after the price fall, NIB trades on a price-earnings around 20, although with full-year operating profit forecast to grow around 25% according to the latest guidance, NIB has probably retreated back to a more realistic valuation now.
While it has several tailwinds supporting the business, NIB has strong competition from the likes of Bupa and Medibank. Indeed the expected $4 billion initial public offer of the country's largest private health insurer, Medibank, is expected within a year and is sure to capture investors' attention. Travel and health insurance business Cover-More Group Ltd (ASX: CVO) has also seen some strong performance since its recent ASX listing. These all look solid investments, however there's another company we've discovered offering…
