Last week private health insurer NIB announced a surprisingly optimistic outlook for 2016 due largely to better than expected claims. The company increased guidance for underlying operating profit to be between $125m and $135m, up around 20%.
With this in mind, there’s every chance the company’s larger competitor Medibank Private will have a similarly rosy experience. We’ve been impressed by how well management has improved claims and administrative expenses since the company’s float in 2014. The underlying net operating margin of 8.1% for the most recent interim result pegs Medibank’s profitability at a similar level to BUPA and slightly ahead of NIB. We would never have guessed it could reach this level in so little time – especially given the operating margin was just 4.4% prior to listing.
We're increasing our price guide to give the stock more leeway on account of the improving outlook and we continue to recommend you HOLD.