Most investors would be well and truly aware that the government-owned private health insurer Medibank Private is set to be privatised in a $5.5 billion dollar initial public offering (IPO) later this month.
If you're yet to do anything about it, the good news is it's not too late – you have until Friday 14 November to apply for shares which is ample time to download the prospectus and to consider the offer.
Here are a few facts to get you started….
- Medibank is forecast to earn in financial year (FY) 2015 around 73% of profits from health insurance, 22% from investment income and 5% from complimentary services such as travel, life and pet insurance.
- Medibank is the largest private health insurer in Australia with an approximate market share of 29% and annual revenues of over $6.4 billion.
- The group is debt free and has around $2.2 billion of cash and investments on its balance sheet.
- Assuming the final offer price is set at $2 per share – which is the top of the range – this will equate to a market capitalisation of $5.5 billion and an FY 2015 price-to-earnings ratio of 21.3x.
- Within the first 12 months shareholders can expect to receive a dividend of 4.9 cents per share which equates to a 4.2% fully franked yield based on a float price of $2. On an annualised basis, the implied fully franked yield is 3.5% for FY 2015.
Many investors will look to compare Medibank to the only other listed health insurer, NIB Holdings Limited (ASX: NHF). While there are certainly some parallels to draw, there are also major differences. Medibank's much larger scale, market share, and potential for significant efficiency improvements which will boost margins once it moves into private hands makes the investment case for Medibank different to the case for NIB.
A waste of time?
The major problem faced by investors considering investing in the IPO is simply the lack of stock available. With suggestions that the float is going to be multiple times oversubscribed; scale backs are set to be significant. This means investors are highly unlikely to get anywhere near the amount of stock they subscribe for which perhaps will make the time and effort of reading the prospectus to determine whether to invest or not seem a waste of time.
Knowledge never wasted
The Medibank IPO is set to be popular, the stock may list at a premium and few investors may receive their desired allocations but investing is a long-term pursuit. Taking the time to analyse the business now can give investors the knowledge to quickly value Medibank in the future when there could be a more appealing entry point with greater value on offer and where the purchaser can buy the quantity of stock they desire.
