Medibank Private Ltd (ASX: MPL) is the largest player in the private health insurance sector, but one expert prefers a different option — NIB Holdings Limited (ASX: NHF) shares.
It's been a hard year for Medibank shares following its cybercrime attack in October 2022 and the ensuing fallout. Medibank shares have largely recovered from their valuation drop so it's now worth considering which is the better pick in the industry.
That said, Medibank also had to face the news this week that an additional $250 million was being added to its capital adequacy requirements from 1 July 2023 following APRA's review of the cybercrime event. Medibank said it has "sufficient existing capital to meet this adjustment".
Why NIB shares could be the better pick
According to reporting by the Australian Financial Review, the broker UBS currently has a buy rating on NIB after it announced yesterday that its healthcare premiums will increase by 2.72% per cent from October 2023.
Though this premium increase was a further deferral from 1 April 2023 and it represents the second-lowest premium price increase in 20 years, following a 2.66% increase in 2022.
The deferral affects 651,000 members, and NIB said its support package for members is now $181 million since March 2020. NIB has given members $40 million, paid into their bank accounts, and a $15 million COVID credit, as well as deferred increases, extra cover for no extra cost, and extra psychology benefits.
The ASX private healthcare insurance business also said that its Australian residents' health insurance (ARHI) business continues to "perform well". It noted, however, that ancillary claims are returning to normal and hospital claims are rising slowly.
On top of that, NIB boss Mark Fitzgibbon said that its 12-month growth rate for ARHI is 4.7% to the end of March 2023, compared to the industry average of 2%. Above-average growth is likely good news for NIB shares.
UBS commented:
The company continues to gain market share and enjoy above-average profit margins in Australian residents' business. We have a positive view of the PHI sector currently and our buy rating on NHF is unchanged.
The AFR reported that UBS prefers NIB compared to Medibank because of the potential of its international and travel segments, with Medibank facing residual risk from that cyber breach that led to punishment by APRA.
Price target
A price target is where an analyst thinks the NIB share price will be in 12 months from the time of the recommendation.
UBS has a price target of $9.20 on NIB, which suggests that shares in the private health insurer could rise more than 9% on their current price.
