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Earnings Update: Why the NIB Holdings Limited share price soared today

The NIB Holdings Limited (ASX: NHF) share price has soared today after the private health insurer reported its first-half earnings results. The NHF share price rose 6.6% and is fetching $5.02 at the time of writing, although the shares did trade as high as $5.09 earlier. That marked a new 52-week high share price for the group.

For the six months ended 31 December 2016, NIB Holdings reported a 65% increase in its net profit after tax result, to $71.1 million compared to $43.1 million in the prior corresponding period. That was off the back of a 7.3% increase in total group revenue, to $995 million, while the group’s underlying operating profit (UOP) rose 43.4% to $95.2 million.

In its update, NIB noted that its core Australian Residents Health Insurance (arhi) experienced net policyholder growth of 2.1% for the six months, meaning that it accounted for over half of all industry policyholder growth during the period. It also increased its premium by an average of 4.48%, which was its lowest in 14 years and below the industry average, which may have helped attract more customers to its products. It noted:

“We’re naturally very sensitive to the pressure upon private health insurance affordability and determined to improve business and market efficiency.”

At this point, NIB’s CEO, Mr Mark Fitzgibbon, says he expects arhi to achieve even greater policyholder growth in the second-half of the year, although profitability mightn’t be as strong as it was in the first six months. Claims experienced in the first half were described as being ‘fairly benign’ but will likely move towards longer-term trend lines, with the full-year net underwriting margin landing at the upper end of NIB’s 5% to 6% target range. This trend can be seen in the chart below:

Source: NIB presentation

Source: NIB presentation

In another sign of confidence from management, NIB declared an interim fully franked dividend of 8.5 cents per share, up from 5.75 cents per share in the prior corresponding period. It also increased its full-year guidance for underlying operating profit which is now expected to be in the range of $140 million to $150 million, compared to its previous guidance of $130 million to $140 million.

By way of contrast, investors were given another look into the private health insurance market via Medibank Private Ltd (ASX: MPL) last week. Medibank, which was sold to investors by the Federal Government in 2014, reported a mere 1.9% increase in its first-half net profit result with declining margins and customer acquisition growth that underperformed the rate of the broader market.

Investors have reason to be pleased with NIB’s results today, while shareholders of Medibank Private have been given another reason to question whether their business has what it takes to reinvigorate its underlying business from here.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. 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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