Market takes axe to NIB Holdings Limited share price: Here’s why

NIB Holdings Limited (ASX: NHF) has seen its share price crash down 7.3% to $4.45 today, despite reporting another year of strong results.

Here’s a summary of the health insurer’s results for the 2016 financial year (FY16)…

  • Revenues up 14.3% to $1.9 billion
  • Gross Underlying Operation Profit (UOP) was $132 million
  • Net profit after tax up 22% to $91.8 million
  • Earnings per share of 21.2 cents per share
  • Dividend of 14.75 cents per share fully franked – up 28% compared to FY15

NIB says every part of the business is growing its customer base and improving earnings.

A big growth area for the company is inbound health insurance and underlying operating profit (UOP) for this division rose more than 41% to $17.2 million. The company now provides health insurance for more than 100,000 international students and workers while in Australia.

Managing Director Mark Fitzgibbon also says lower claims inflation was a help this year to increase gross margins, and may lead to lower premium rises in the year ahead. Claims inflation is mostly a result of more healthcare treatment than the cost of a treatment Mr Fitzgibbon says. Hospital paid claims rose 12.4% compared to the previous year he says.

It’s a similar theme first reported last week by Medibank Private Limited (ASX: MPL) when the health insurer said the industry needed to address the rising costs of healthcare.

What next for NIB Holdings?

NIB is forecasting UOP in the range of $130 to $140 million for the 2017 financial year, with Mr Fitzgibbon saying, “FY16 will be a hard act to follow and the pressures of competition and premium affordability means pressure on margins.

That suggests a similar result to this financial year – perhaps low single-digit growth in profits and earnings. For a company with a trailing P/E of over 21x, that’s not what the market was expecting – hence the selloff today.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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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