Medibank Private Limited (ASX: MPL) reported its half year result for the six months to 31 December 2018, is it a buy for the dividend?
Medibank is the largest listed private health insurer in Australia with its Medibank and AHM brands. It has been operating for over 40 years and has around 1.8 million policyholders & 3.7 million customers. The company is headquartered in Melbourne.
Here’s what Medibank reported
Group revenue increased by 2.7% to $3.56 billion, which was driven by growth of 0.4%, or 6,400, of policyholders. There were a few different factors at play within this.
Medibank policyholders decreased by 1.5% to 1.41 million whilst ahm policyholders increased by 10.7% to 0.38 million. The annualised average revenue per policy unit increased by 1.9% to $1,384.8 – Medibank achieved a small price increase for policyholders.
The company’s operating profit increased by 2.4% to $293 million, but net profit after tax (NPAT) and earnings per share (EPS) actually decreased by 15.4% to $207.7 million and 7.5 cents per share respectively. The reason for the decline in bottom line profit was that net investment income fell by $55.6 million. Medibank invests funds and generate a return until a health insurance claim comes in.
According to Bell Potter, analyst consensus was expecting a profit of $240 million. Excluding the net investment income, Medibank achieved this easily, but including it the company missed the mark.
Medibank Dividend
Based on the small amount of operating profit growth, Medibank decided to increase dividend slightly by 3.6% to 5.7 cents per share.
Medibank Management Comments
Medibank CEO Craig Drummond said: “Our focus on improving customer outcomes has driven a strong uplift in customer advocacy and delivered growth in resident policyholders of 6,400 in the first half, compared to a loss of 4,200 in the previous corresponding period.”
In the last few months Medibank announced that it had lost the ADF Garrison Health Services contract. Mr Drummond said the company now has a plan to recover the lost earnings: “This will be achieved through increased scale and capability in our existing businesses and cost-out within Medibank Health of $8 million.”
Is Medibank a buy?
The Garrison Health Services contract in FY18 was around $30 million, which compared to $548.8 million of total operating profit in the year. This represented just over 5% of profit last financial year, so it will be a sizeable hit to profit in FY20.
Medibank has a fully franked dividend yield of 4.7%, which is pretty solid for this environment of low interest rates, but the private health industry seems structurally challenged at the moment. If you’re looking for big businesses to invest in then the below three ASX choices could be ideal.
3 ASX Large Caps Potentially Better Than Medibank
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