The NIB Holdings Limited (ASX: NHF) share price has only risen by 15% in the last five years. Could the next five years be a lot better for the private health provider?
One of the main things that have happened in the past five years is that NIB has diversified its sources of earnings.
The business has managed to grow its Australian resident policyholders at a much stronger rate than the wider industry over the long term. It also has other segments including 'international inbound health insurance', a New Zealand business and travel insurance.
There's one area in particular where the business thinks there is strong growth potential for the company to pounce on – the NDIS. NIB has a division called Thrive which it thinks has lots of potential.
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Significant marketplace
According to NIB and the NDIS quarterly report for June 2022, the NDIS 'marketplace' was worth $29 billion in FY22, with plan management and support co-ordination worth over $1 billion.
The company noted that it has long and deep experience in connecting buyers and sellers of healthcare, it's a well-known and trusted brand, and it has technology advantages.
NIB suggests that it has the capacity to lead orderly consolidation, improve efficiencies and integrity.
In the first half of FY23, it raised $158 million to make acquisitions in the NDIS space.
It has made four acquisitions. The first three came at a cost of $108 million with around 22,000 participants and annualised earnings before interest, tax, depreciation and amortisation (EBITDA) of $13.3 million.
It has also entered into an agreement to acquire plan manager All Disability Plan Management, based in Port Macquarie, which has about 3,000 participants.
The company said that it's considering further acquisitions.
NIB Thrive is expecting to manage plans for 50,000 NDIS participants by FY25. The ASX share said that the NDIS is expected to double in size by 2030, which may be a very positive sign for the NIB share price in the next five years and beyond.
Other aspects of the business are promising
With borders now open after COVID, the business is benefiting from the increased availability of travel. As more international travel occurs, I think this business will see improved earnings from higher volumes.
The international student volumes are strongly rebounding, while international workers are also adding to NIB's growth.
NIB is hoping to keep growing its policyholder numbers. Hospital claims are expected to remain subdued in the second half of FY23, though conditions (including margins) are expected to normalise as time goes on.
Is the NIB share price good value?
According to estimates on Commsec, NIB could generate 43.2 cents of EPS in FY25. This would put NIB shares at under 17 times FY25's estimated earnings. I think that's a reasonable valuation considering the business is expected to grow both its EPS and dividend in each of the next few years.
I think it can keep growing its policyholders and profit, making it an attractive option for the next five years and perhaps beyond.
