Medibank (ASX:MPL) share price on watch after 40% jump in profit

A 4,900% rise in investment income boosted total profits by 40%.

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The Medibank Private Ltd (ASX: MPL) share price will be one to watch when trading resumes this Wednesday. That's after the health insurance company released its full-year results for FY21.

At close of trade yesterday, shares in the company were swapping hands for $3.53 – down 1.67%. The S&P/ASX 200 Index (ASX: XJO), meanwhile, ended the day 0.17% higher.

Let's take a closer look at today's announcement.

Medibank share price in focus with falling dividend payout ratio

  • Revenue increased 1.99% on the prior corresponding period (pcp) to $6.9 billion.
  • Net profit after tax (NPAT) jumped 39.8% to $441 million. Despite operating expenses increasing 1.12% on the pcp, a 4,900% leap in net investment income ($120 million) aided the rocketing NPAT.
  • Earnings per share (EPS) of 16 cents – up 39.8% on the pcp.
  • A full-year dividend payout of 12.7 cents per share (6.9 cent final + 5.8 cent interim payment), fully franked. It's an increase of only 5.8% on the pcp – despite the larger profit rise. The payout ratio fell from 90.1% to 87.7%. At the current share price, the payout represents a dividend yield of 3.60%.

What happened in FY21 for Medibank?

The biggest news of the year — in general and for the Medibank share price — would arguably be the coronavirus pandemic.

Medibank CEO David Koczkar addressed the impact of the virus on the company in today's release:

More people continue to prioritise their health and wellbeing and see greater value in private health, given the uncertainty around COVID and heightened pressure on the public system.

The investments we have made over the last few years have enabled us to step up and provide broader support to our customers during this period, while accelerating our growth at the same time.

Koczkar became CEO in this financial year, taking the helm on 17 May. His predecessor, Craig Drummond, announced his retirement in late February.

What else did management say?

Koczkar also addressed the company's performance at large, saying:

We have delivered a high-quality result underpinned by strong policyholder growth across both brands, our highest ever customer advocacy, growth in Medibank Health, and ongoing focus on management expenses.

This result is a clear demonstration that focusing on our customers' needs and being disciplined in how we run our business delivers strong results.

What's next for Medibank?

Medibank is forecasting a 2.4% growth in underlying average net claims in FY22. This is in line with the second half of the prior financial year. It is also hoping to achieve a 3% growth in policyholders.

The company also has a $15 million target for productivity savings and is targeting inorganic growth for Medibank Health and Health Insurance for FY22. Let's see what this will mean for the Medibank share price.

Medibank share price snapshot

Over the past 12 months, the Medibank share price has increased 23.4%. This is about 1.5 percentage points better than the ASX 200. Year-to-date, Medibank shares have increased 16.1% – outpacing the benchmark index by around 4 percentage points.

Medibank Private has a market capitalisation of approximately $9.7 billion.

Motley Fool contributor Marc Sidarous has no position in any of the stocks mentioned. 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 no position in any of the stocks mentioned. 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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