The Medibank Private IPO closes on Friday, but if you miss the deadline you might be doing yourself a favour.
Current commentary suggests that the IPO share price is likely to be set above $2.00 for institutional investors. Fairfax media reports that a pre-listing shadow market operated by IG Markets has the share price currently at $2.15.
The federal government may well set the offer price slightly lower than that, to keep investors interested, say $2.05 to $2.10. Retail investors will of course only pay the maximum price of $2.00, guaranteed under the prospectus.
That suggests they could see a small profit when the health insurer lists on the ASX in December, but then will have to wait nearly a year to see a dividend from the company – and a small one at that. At $2.00, Medibank is yielding around 3.4%, fully franked and annualised. That share price is also expensive, sporting a prospective P/E ratio of 21.3 time earnings.
By comparison, Sonic Healthcare Limited (ASX: SHL) is one of the top quality health care stocks listed on the ASX, and trades on a forward P/E ratio of 18.7x and currently pays 3.6% partly franked dividend yield. Sonic has grown earnings per share at 14.6% per year over the past decade, something that private health insurers such as Medibank will struggle to do, given their heavy regulation over premiums.
Primary Health Care Limited (ASX: PRY) is another company that offers a cheaper price and more potential than Medibank. The company operates medical, pathology and diagnostic centres around Australia, and is trading on a prospective P/E ratio of 13.1x, while paying a 4.5% fully franked dividend yield.
CSL Limited (ASX: CSL) sports a higher P/E ratio than Medibank at 25.8x, but has the credentials to more than back that up. The company I regard as the highest quality company on the ASX, has grown earnings per share at an average of 21.4% over the past 10 years, and has the potential to continue delivering that sort of performance into the future.
That suggests that investors should ignore the hype. There are plenty of cheaper fish in the sea, with better prospects.
