Leading private health insurer Medibank Private Ltd (ASX: MPL) has had quite a volatile short history since listing via initial public offer (IPO) in November 2014.
With the share price currently trading around the $2.40 mark, retail IPO investors are sitting on a healthy capital gain of around 16%. With the 12 month holding period soon to pass, it could be worth considering whether the stock is a buy, hold, or sell at these levels.
Medibank Private recently held an investor day at which it outlined its growth strategy for the future, here are three key takeaways:
- Medibank remains the industry market leader with a share of 29%. This is ahead of its closest competitor Bupa which has a near 27% share and well ahead of listed peer NIB Holdings Limited (ASX: NHF) with a market share approaching 8%. As a dominant player within the sector, Medibank should be well positioned to leverage its buying power with private hospital suppliers.
- Medibanks's dual approach of offering the Medibank brand of private health insurance (PHI) to customers who are less price focussed and more 'total care' focussed, in parallel with its ahm brand which is aimed at the value-conscious, 'no frills' customer appears a sensible strategy to reduce leakage however it still creates a problem of churn between its two competing offerings.
- The long-term growth outlook for the PHI industry is positive with total health expenditure growing at 7.9% per annum (pa) over the past decade. In comparison, GDP growth pa was 3%. This above average growth is a key tailwind for the sector in general and Medibank Private specifically.
Buy, Hold or Sell?
Despite a number of attractive qualities, these all appear to be currently fairly well reflected in Medibank Private's share price. That's not particularly surprising considering IPO's of large, established businesses, generally come to market in the vicinity of their fair value. Add to that, the 16% rise in Medibank's share price and the group's long-term outlook and the stock appears to be trading around its fair value.
