NIB (ASX:NHF) share price sinks 11% despite profit surge

NIB shares are moving the opposite way of company's positive results…

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The NIB Holdings Ltd (ASX: NHF) share price is falling heavily on Monday morning. This comes after the private health insurer released its full-year results for the 2021 financial year.

At the time of writing, NIB shares are down 11.28% to $7.08. It's worth noting that last Friday, the NIB share price touched a 52-week high of $8.05.

Let's take a look at what the company reported.

NIB share price plummets despite growth across key metrics 

The NIB share price is sinking today regardless of the company delivering a robust result for the 12 months ending 30 June 2021. Here are some of the key highlights:

  • Total group revenue of $2.6 billion, up 2.9% on the prior corresponding period (FY20 $2.5 billion);
  • Group expense claim of $2 billion, up 2.5% (FY20 $1.95 billion);
  • Group underlying operating profit (UOP) of $204.9 million, up 39.5% (FY20 $146.9 million);
  • Net profit after tax (NPAT) of $160.5 million, up 84.5% (FY20 $87 million); and
  • Fully-franked final dividend of 14 cents per share, up from 4 cents per share.

What happened in FY21 for NIB?

NIB experienced strong arhi (Australian Residents Health Insurance) policyholder sales growth and retention. Net arhi policyholder growth lifted 4.2% (26,000 new policyholders) versus 3.1% for the industry average.

This was partly driven by elevated community awareness for financial protection and risk of disease as a result of COVID-19. Resumption of previously suspended policies, and the benefits of arhi's distribution strategy, also attributed to the result.

In addition, its New Zealand business saw stable performance of 5,500 policyholders (excluding international students) added to the books.

However, both the international inbound and travel businesses were significantly impacted by border closures. Each segment reported a loss despite cost reduction and business efficiency measures implemented throughout the year.

Iihi (international inbound health insurance) membership recorded a loss of $5.9 million, while NIB travel sales also registered a loss of $13.6 million. NIB remains confident that both iihi and travel sales will bounce back.

In contrast, these two businesses combined contributed $41.5 million to group earnings in FY19 compared with a loss of $19.5 million in FY21.

NIB also put aside a $34 million provision for further catch-up of deferred claims in relation to COVID-19. Although it did note that forecasting future claims is extremely difficult to predict at this time.

What did management say?

NIB managing director Mark Fitzgibbon commented on the milestone achievement, saying:

Neither FY21 or FY20 can be considered "normal" given fluctuation in healthcare utilisation and claims experience. A high level of provisioning in our accounts for deferred claims especially caused a substantial decline in FY20 UOP while our FY21 claims experience has turned out better than expected.

… The pandemic has clearly heightened people's awareness of the risk of disease and the need for financial protection as well as timely access to treatment. This is reflected in our policyholder growth which has also benefited from improvement in retention and resumption of previously suspended policies.

What's next for NIB?

Looking ahead, NIB expects market conditions for FY22 to remain similar to FY20, with the pandemic having mixed consequences.

Ahri's policyholding is expected to lift between 2% to 3%, along with stable and consistent growth in New Zealand.

The near-term outlook for the iihi and travel businesses is expected to be challenging due to restrictions on foreign entry and travel.

On a positive note, NIB obtained a licence to sell health insurance in China through its joint venture with Chinese pharmaceutical company Tasly. First sales were made in July; however, the business isn't expected to be profitable for another couple of years.

Given the unpredictable nature of COVID-19, NIB refrained from providing an earnings guidance for the FY22 period.

Motley Fool contributor Aaron Teboneras owns shares of NIB Holdings Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended NIB Holdings Limited. 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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