Can the Medibank Private Limited (ASX: MPL) share price reach $3.80 before the end of the calendar year?
No-one can truly know what share prices are going to do. But analysts like to project where they think the share prices of businesses might be in 12 months from now. So, not necessarily where the business is going to be in two and a half months. But it could indicate the direction that brokers feel that Medibank is headed.
What's the price target for the Medibank share price?
There are several different brokers. Each of them have a different opinion about where the private health insurer is going to be.
One of the most optimistic outlooks is from the broker Morgan Stanley, which has a price target of $3.80. That implies the Medibank Private share price could rise by around 10% over the next year, if the broker is right.
The broker thought the FY21 result was good and thinks that Medibank can continue to increase its total number of policyholders. It could achieve lower premiums for policyholders with changes relating to prosthetics.
How good was FY21?
It revealed that revenue from external customers rose by 2.1% to $6.91 billion, whilst health insurance operating profit grew by 14.4% to $538.6 million. Net claims expenses only grew by 1.4%. Continuing operations operating profit rose 14.6% to $528.3 million.
There was a large increase in net investment income, going from $2.4 million to $120 million. This helped continuing net profit after tax rise by 39.8% to $441.2 million.
The profit growth allowed the Medibank board to grow its annual dividend per share by 5.8% to 12.7 cents. At the current Medibank share price, that represents a grossed-up dividend yield of 5.2%.
During FY21, net resident policyholders increased by 4.6% to 82,500. That was an increase from 0.6% in FY20.
When adjusted for COVID-related suspensions, policyholders increased 3.5% with the Medibank and ahm brands growing 1.3% and 10.9% respectively. It said that its acquisition rate was largely driven by strong growth in the 'new to industry' customer segment within the Medibank brand. Its retention rate improved by 130 basis points at a fund level, reflecting improving customer advocacy across both brands.
The company said that it had grown more in the prior 12 months than it had over the last 10 years, with the market share up 37 basis points. Another area of improvement was its net promotor score, with a 5.3 increase for Medibank and a 1.8 increase for ahm.
In terms of the outlook, the Medibank CEO David Koczkar said:
While we expect overall participation growth to slow compared to FY21, we plan to further strengthen our dual brand strategy by delivering differentiated and compelling products and services that respond to growing areas of customer demand.
We also have a critical role to play in driving change in Australia's healthcare system and advocating for reforms to improve the affordability and value of private healthcare.
This is why we will continue to invest in preventative health and building more partnerships with doctors, hospitals and governments. However, these changes will not come quickly nor will it be easy, but the sustainability of our health system is at stake.
Valuation on the Medibank Private share price
According to Morgan Stanley, Medibank Private shares are valued at around 20x FY22's estimated earnings.
However, not every broker is so positive on the health insurance giant. For example, Morgans rates Medibank as a hold with a price target of $3.28. In other words, it thinks that Medibank shares are going to edge lower over the coming months.
