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Medibank Private Ltd shares sink on regulatory risk

As one of the largest initial public offerings (IPO) undertaken in the past few years, there is likely a lot of shareholders rightly wondering what’s going on with the share price of listed private health insurer (PHI) Medibank Private Ltd (ASX: MPL).

In the past month, the share price of Medibank Private has fallen 9.2%. In comparison, its closest peer, NIB Holdings Limited (ASX: NHF) has dropped 7.8%, while the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) is essentially flat.

The share price performance of Medibank isn’t just underwhelming over the past month it is in fact equally underwhelming over its whole (short) listed life on the ASX.

Since first trading just over one year ago the share price has declined 2.3%. Retail investors who took stock in the IPO are still registering slim capital gains with the stock currently trading at $2.12 which is above the float price of $2 a share but it’s hardly a stellar return.

While there is no specific reason for the underperformance of the stock in the past month, certainly the recently released Mid-Year Economic and Fiscal Outlook (MYEFO) by the Federal Government won’t have boosted investor confidence in health care exposed sectors.

As I outlined here, the government is looking to tighten the purse strings on its health care spending which would be bad news for a number of companies operating within the health sector. If the proposals are ultimately enacted, consumers may be forced to contribute more out-of-pocket medical expenses which could in turn put pressure on their ability to afford their private health insurance policies.

This could lead to consumers either trading down to lower-cost, more basic policies such as those offered by Medibank Private’s no-frills brand AHM. It could also lead to consumers switching away from the market-leading Medibank Private in favour of lower priced offerings or indeed cancelling their policies altogether and relying completely on the public system.

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Motley Fool contributor Tim McArthur owns shares in NIB Holdings Ltd.. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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