Medibank Earnings: Pleasing Return to Policyholder Growth As Cyber Disruptions Fade

Medibank’s MPL fiscal 2023 profit increased 30% to AUD 511 million, broadly in line with our forecasts when adjusting for one-off cybercrime costs. The core private health insurance business modestly bettered our forecasts, but was offset by reduced income from Medibank’s other investments. Reduced telehealth income in the wake of the pandemic and costs in establishing new short-stay hospitals were a drag, but this has no implication for our positive long-term view as these startup costs are expected to bear fruit over the forecast period.

Group operating profit (before amortisation and investment income) up a solid 10% in the year is more reflective of the underlying performance of the business. Premium increases, a modest lift in policyholders, and claims below expectations underpin the solid result. A rebound in students and workers following border reopenings drove an almost 80% increase in profit from nonresident insurance, making up around 5% of the health insurance result. Investment income of AUD 139 million, compared with just AUD 25 million last year, boosted the bottom line. With cash rates now higher than the average of fiscal 2023, another strong year for investment income in fiscal 2024 is expected. Overall, we anticipate strong earnings growth again in fiscal 2024 on policyholder growth and subdued claims inflation, which moderates in proceeding years as private health insurance margins contract and investment income declines.

Our fair value estimate is increased 6% to AUD 3.50 per share on the time value of money, with shares trading in line with our revised valuation. Fiscal 2024 guidance includes up to 2% growth in policyholder numbers, claims per policyholder to grow by 2.6%, and another AUD 30 million-AUD 35 million in one-off cyber costs. Margins in private health insurance are expected to be broadly flat. These targets appear achievable.