The ASX healthcare share NIB Holdings Ltd (ASX: NHF) has suffered a sizeable decline in the last few months. It's worth asking the question if it's attractive after the drop of more than 20% since August.
Sell-offs can be opportunities if the company rebounds. But there's no guarantee that will happen if economic pain sticks around for the long term.
There is a lot of uncertainty in the private healthcare space right now, so let's look at a couple of the issues that insurers are facing.
Two important issues for the ASX healthcare share
Private health insurers reportedly want to implement a premium increase of between 5% and 6% in April, which would represent the largest increase since 2016. NIB CEO Mark Fitzgibbon said the company is expecting claims inflation to be between 4% to 6%.
Last time, Health Minister Mark Butler only granted a premium increase that was about half of what insurers had requested.
If costs rise faster than revenue, the ASX healthcare share could see declining profit margins.
Another issue is the battle between private hospitals and private health insurers. Over the last several years, private hospital profitability has decreased, while private health insurer profits have risen, particularly during the COVID period.
It's a tricky dynamic, with the Australian government, households, private hospitals, and private health insurers all involved in the funding conversation.
Is the NIB share price a buy?
Broker UBS is bullish about the prospects for NIB shares in the next year.
A price target is where the broker thinks the share price will be 12 months from the time of the note. Currently, UBS has a price target of $8.50 on NIB, which implies a possible rise of close to 50% from today's level.
NIB recently provided guidance for its FY25 underlying operating profit (UOP) of between $235 million and $250 million.
The business said in the recent update that its Australian resident health insurance business is growing strongly, with net policyholder growth for the first four months of FY25 up 25% year over year. Its annualised growth rate of 3.2% is likely well ahead of average system growth.
The company expects its net margin for the full financial year to be "in the order" of 6% to 7%, which is in line with its target range.
However, the ASX healthcare share said there has been "extraordinary" growth in New Zealand claims, which is weighing on performance, where it's expecting an operating loss in the first half of FY25 of about AU$10 million. But, conditions are expected to improve in New Zealand, with higher pricing, operating cost savings, and claims inflation moderating.
At the current NIB share price, it's valued at 13x UBS' FY25 estimated earnings.
