The NIB Holdings Limited (ASX: NHF) share price has suffered a very unhealthy decline of 27% in the past 12 months. That's despite the S&P/ASX 200 Index (ASX: XJO) rising roughly 12%, meaning the ASX healthcare share has underperformed by close to a whopping 40%.
The decline has also happened despite NIB still growing in scale during this period, so it begs the question of what's going on and whether this is an opportunity. It grew its revenue by 9% in FY24.
It's normal for there to be difficulties for specific industries sometimes. Private health insurance is a niche industry compared to general insurance, in my view, with more complexity due to private hospitals and government funding involvement.
What's going on in the private health industry?
Operators like NIB and Medibank Private Ltd (ASX: MPL) are partly dependent on the overall health of the private system.
Investment bank Goldman Sachs thinks industry policyholder growth has remained "resilient" through the first half of FY25 ("perhaps surprising to the upside", in the broker's words), though it notes weakening affordability for Australians. This may be a key driver of the NIB share price, in my view.
Goldman Sachs also suggested that the "competitive environment for policyholder acquisition is still strong resulting in lapses / churn reverting toward pre-COVID levels".
Policyholder growth has been supported by factors like population growth, first-time take-ups of private health insurance, and younger age groups, according to Goldman Sachs.
The industry has been under pressure to keep a lid on premium increases to help affordability and reduce inflation. However, Goldman Sachs believes the April 2025 approved premium rate increases could be higher than 2024 because of "hospital indexation/inflation (including nurse wages) as well as higher bed rates for private patients in NSW public hospitals."
The broker is concerned that the risks for the profit margins of NIB (and Medibank) "are building with inflationary pressures and low approved premium rate increases". NIB is expecting to achieve net margins within its target net margin range of between 6% and 7%.
Is the NIB share price attractive?
The group underlying operating profit (UOP) guidance from NIB is $235 million to $250 million, with Goldman Sachs thinking NIB will be at the bottom end of that range.
Overall, for the FY25 first-half result, the broker expects NIB to achieve insurance revenue of $1.71 billion, an insurance operating profit of $93.6 million, and an underlying operating profit of $101.4 million. The forecast FY25 half-year dividend is 11.1 cents per share.
For the full FY25 result, Goldman Sachs projects $3.7 billion of revenue, $216.7 million of insurance operating profit, and $236.5 million of underlying operating profit, with a possible annual dividend per share of 26.5 cents.
At the current NIB share price, it's valued at 15x FY25's estimated earnings with a possible grossed-up dividend yield, including franking credits.
If investors are interested in NIB shares, then I'd say this is the right time to look at the company. Goldman Sachs currently has a buy rating on NIB shares with a price target of $6.50, implying a possible 12-month rise of just over 10% from where it is today.
