NIB Holdings Earnings: Open Border Rebound and Line Drawn on Claim Catchups

We increase our fair value estimate for narrow-moat NIB Holdings NHF by 7% to AUD 7.50 per share on the time value of money and improved outlook for the travel insurance division and nonresidents private health insurance, both recording better margins than we expected. For the group, we forecast 5.5% profit growth per year over our forecast period. While we anticipate Australian health insurance earnings to be in gradual decline as margins normalise, the other divisions are benefiting from a rebound in activity postpandemic, plus growth via acquisitions in plan management for participants of the National Disability Insurance Scheme, or NDIS.

NIB reported a 43% increase in net profit after tax to AUD 191 million for fiscal 2023. Earnings were driven by higher revenue from increased policyholders across all divisions and higher investment income. Underlying operating profit rose 11% to AUD 263 million. Although the underlying performance of each division was pleasingly better than expected, NPAT was 5% lower than we had forecast due to operating losses associated with its investment in startup Midnight Health.

The private health insurance industry benefited from fewer hospital admissions and claims during the pandemic, and although NIB returned some of the profits to members, profits have remained high and may warrant smaller price increases moving forward. Other divisions did not fare as well, but with a reset cost base and pricing changes, the travel insurance and nonresident health insurance businesses are recording solid results. We forecast NIB’s NDIS businesses will contribute over AUD 30 million to profit by fiscal 2027, replacing the downside in Australian private health insurance.

The final fully franked dividend of AUD 15 cents per share takes full-year dividends to AUD 28 cents, up from AUD 22 cents last year, and above our AUD 27 cents forecast. We expect steady dividend growth on a payout at the mid to top end of management’s 60%-70% target range.