The NIB Holdings Limited (ASX: NHF) share price is collapsing this morning amid its FY24 full-year earnings.
Investors are punishing the private health fund today, with shares currently down 14.9% to $6.18. The savage selling is playing out even though the company reported a 67% increase in profits versus the prior year.
NIB share price plummets despite claims growth
Here are the essential details of the private health insurers' full-year results:
- Revenue up 9.3% from FY2023 to $3.3 billion
- Group underlying operating profit up 77.3% to $257.5 million
- Net profit after tax (NPAT) up 67.4% to $181.6 million
- Total fully franked dividends per share up 3.6% to 29 cents per share
NIB policyholders increased by 2.5% in FY24, expected to exceed the industry average. As noted by the company, growth persisted through a challenging mixture of cost of living pressures, amplified competition, and premium increases.
What else happened in FY24?
Although FY24 was a record year for Australian Residents Health Insurance (arhi) sales, there were some drawbacks. NIB experienced a 4.9% rise in claim expenses, taking the figure to $2.1 billion. The company's CEO, Mark Fitzgibbon, said:
Claims experience is accelerating from an artificially low COVID-19 utilisation base and together with hospital cost pressures, is placing pressure on premiums and underwriting margins. This inflation is manageable and will normalise in the medium term.
Yet Fitzgibbon's words have failed to arrest investors' concerns today. The higher-than-expected claims growth overrides other positive markings in NIB's FY24 results.
Speaking of which, the company delivered top-line increases across other segments of the business, for example:
- International Inbound Health Insurance (iihi) insurance revenue up 19% to $192.8 million
- New Zealand insurance revenue up 10.2% to $371.2 million
- NIB Travel gross profit after acquisition costs up 7.8% to $54.2 million
- NIB Thrive NDIS fee income up 39.8% to $51.3 million
Various drivers behind the above increases include strong demand for international workers, return to international travel, and extreme pressures on the public healthcare system.
Despite this, the NIB share price is down 23% compared to a year ago, as shown above.
What did management say?
Giving a brief overview of the company's result, Fitzgibbon said:
[The] arhi [segment] continued its long track record of above system growth, and those businesses that were troubled during the pandemic — international students and travel — are recovering well. While the New Zealand profit was disappointing, it was a consequence of a postpandemic surge in claims and we are quickly taking remedial action.
Analysts are taking a less optimistic view of the figures. Citi analyst Nigel Pittaway emphasised that the company's 2.5% policyholder expansion was below the 3% to 4% guidance. Furthermore, NIB's underlying operating profit for FY24 fell 5% short of expectations.
What's next for NIB?
For investors setting their sights on FY25, here are a few of the forward targets NIB shared in its presentation:
- Net policyholder growth of ~3% for arhi
- Medium to long-term underlying claims inflation between 4% and 6%
- Net policyholder growth between 3% and 4% for NZ
- Reaching breakeven for Honeysuckle Health in FY25 and Midnight Health in FY26
In addition, Fitzbiggon believes the current healthcare system climate is advantageous for private health insurers. To demonstrate this, the CEO notes that the number of people who have taken out private health insurance has increased each quarter for 15 consecutive quarters.
Factoring in the current NIB share price, the company now trades on a price-to-earnings (P/E) ratio of 19.3 times FY24 earnings.
