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Medibank Private Ltd (ASX:MPL) shares sink lower on weak full year results

The Medibank Private Ltd (ASX: MPL) share price sank like a stone on Friday morning before recovering as the day went on.

In afternoon trade the private health insurer’s shares are down just 2% to $3.11. At one stage Medibank’s shares were down as much as 7% to $2.95 after its full year results fell short of expectations.

Here is a summary of how Medibank Private performed in FY 2018 compared to a year ago:

  • Revenue rose 1.6% to $6,906.4 million.
  • Premium revenue up 1.2% to $6,319.5 million.
  • Net claims expense rose 0.9% to $5,226.7 million.
  • Group operating profit up 9.7% to $548.8 million.
  • Net profit after tax fell 1% to $445.1 million.
  • Earnings per share of 16.2 cents.
  • Dividend per share of 12.7 cents.
  • Outlook: Expects flat PHI market volumes to persist but targeting modest market share growth.

As you can see below, the modest top line growth was driven by a small rise in policyholders and a 1.9% increase in average revenue per policy unit. While policyholders fell 2.2% to 1,419,600 for the Medibank brand, this was offset with an 11.2% increase in policyholders to 361,300 for the ahm brand.

Source: Company presentation

Unfortunately, the growth in revenue was partially offset by a rise in claims. Although Hospital claims remained flat year on year, Extras claims rose 3.9% during the year. This is shown on the charts below.

Source: Company presentation

Should you invest?

I felt this was a soft result and wasn’t surprised to see investors hitting the sell button today.

After all, based on its result today, Medibank’s shares are changing hands at a little over 19x earnings. This is a premium over the market average, which I think makes its shares reasonably expensive given its profit decline this year and soft outlook for FY 2019.

Because of this, I intend to avoid Medibank for the time being along with other healthcare shares that may struggle from the tough trading conditions such as Ramsay Health Care Limited (ASX: RHC) and Healthscope Ltd (ASX: HSO).

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Ramsay Health Care Limited. 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 Scott Phillips.