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09 April 2021 | Buy

BUY | Medibank


Well placed for solid long-term earnings growth

Medibank (ASX:MPL)

Medibank is Australia’s largest private health insurer with ~35% market share. Government policies and incentives encourage participation, with 55% of the population covered by private hospital and/or ancillary health insurance.

Operating in a heavily regulated industry, Australian health insurers like MPL typically produce stable and defensive earnings and, in our opinion, they are well placed to produce solid long-term earnings growth.

We see excellent long-term value and take confidence in their strong balance sheet that should fund growth. The news Medibank is taking 33.4% stake in MyHealth Medical Group is a modest positive and is expected to be immediately earnings accretive. The deal provides Medibank general practitioners access to surgical data that may improve patient outcomes, potentially lowering claims costs and private health insurance pricing for customers over the long term.

MPL recently reported a good quality interim, with a 30% improvement in customer retention along with margin expansion and market share gains signalling a solid growth outlook, so we see compelling value on recent weakness.

We see Medibank as attractive exposure in the insurance sector as the stock is a consistent dividend payer over the longer term and present forecasts should yield 4% fully franked.


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