Medibank Private IPO overpriced say investors

Close to twice as many investors think the IPO is expensive as those that think it's cheap

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

In what could be a serious blow to the Federal government, many investors appear to regard the Medibank private IPO price range of between $1.55 and $2.00 as overpriced.

In a survey on Fairfax Media's The Age Markets Live webpage, 43% of respondents to a poll suggest it is overpriced, 34% are unsure, while just 23% think the price is attractive.

On that price range, the company will be trading on a prospective P/E ratio of between 16.5x and 21.3x earnings. Medibank is also proposing to pay a fully franked dividend in the 2015 financial year of 4.9 cents per share, equating to an annualised yield of between 4.2% and 5.4%.

That appears expensive when you compare those figures to many other companies. Woolworths Limited (ASX: WOW) is arguably one of Australia's best businesses, and yet it is trading on a prospective P/E ratio of 16.8x and forecast to pay a fully franked dividend yield of 4.2% in 2015. In fact, given the recent market volatility and the near 10% fall in the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), many stocks are looking more attractive than they were six weeks ago.

And when you consider that Medibank is constrained by the government on how much it can raise premiums, thus limiting its potential earnings per share growth, simply buying Woolworths on any pull back looks the better option.

Of course that's not comparing apples with apples, so let's take a look at similar ratios for NIB Holdings Limited (ASX: NHF). Based on consensus forecasts, NIB is trading on a prospective P/E ratio of 17.2x, and expected to pay a dividend yield of around 3.7%. But NIB boasts better margins than Medibank, earning around 5%, while Medibank makes 3.6 cents for every dollar of premium.

We still won't know the final price, which will be revealed on Tuesday, November 25, although retail investors will need to apply by November 14.

Clearly there's no reason to rush in, with more details about the expected price likely to be reported in the media between now and then. I'll be doing likewise, watching and waiting.

Motley Fool writer/analyst Mike King owns shares in Woolworths. You can follow Mike on Twitter @TMFKinga

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »