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Where to now for the NIB share price?

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So far, this year has been a disappointing ride for the NIB Holdings Limited (ASX: NHF) shareholders. The NIB share price has fallen 32% over the past 12 months and has been hovering under $5 since it released its results back in February.

At the time of writing, NIB shares are trading 0.21% higher to $4.85 compared to the S&P/ASX 200 Index (ASX: XJO), which is down 0.1% to 6,116.40 points.

Why did the NIB share price fall?

When the private health insurance provider released its HY20 group results, they fell short of market expectations. NIB’s underlying operating profit declined 27.2% to $83.2 million, despite growth in its total group revenue, which stood at $1.3 billion, up 6.4% compared to the prior corresponding period.

On top of this, the emergence of the coronavirus pandemic in Australia sent shockwaves through the ASX and sent the NIB share price south to a multi-year low of $3.34.

Since then, NIB updated shareholders in May about the challenging conditions the company was facing. April sales in its flagship Australian Residents Health Insurance (arhi) business were down 22% and lapse of policies declined by 23%.

In the claims department, savings were relatively modest at the end of March compared to what was anticipated in the coming months. In the update, NIB advised that calculating savings is complex and could not provide an estimate. However, the company stated there could be possible cash refunds for members as compensation for the lack of benefits accessed during these difficult times.

What’s next for NIB shareholders?

NIB is expected to release its FY20 results on Monday 24 August.

No update on its FY20 guidance has been given due to the uncertainty of the business impact over these past few months. However, it has advised it expects a surge in treatment and claims, post-COVID-19.

Additionally, the company’s bottom line will be affected as premiums have been suspended until October 2020, among a range of other measures such as offering financial hardship and extended product coverage support at no extra cost.

The final dividend for FY20 will be considered depending on the financial health of the company.

Foolish takeaway

Economy-wide constraints have affected the private health insurance provider. The current environment remains one marred by volatility as it has impacted healthcare treatment and claims.

Personally, I don’t think the NIB share price will recover in the short-term. Trading on a forward price-to-earnings (P/E) ratio of 16.63 compared to its bigger rival Medibank Private Ltd (ASX: MPL)‘s P/E of 25, NIB is much better value. However, in my opinion it is best if investors have NIB shares on their watchlist for now until the economy has fully recovered.

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Motley Fool contributor Aaron Teboneras owns shares of NIB Holdings Limited. The Motley Fool Australia has recommended NIB Holdings 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.

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Aaron Teboneras