NIB Holdings Limited (ASX: NHF) has reported its half year result to 31 December 2018.
NIB is one of the ASX’s largest private health insurers, it was founded in 1952. NIB provides health and medical insurance to over 1.5 million Australian and New Zealand residents. NIB also provide health insurance to more than 170,000 international students and workers in Australia. It’s also Australia’s third largest travel insurer and global distributor of travel insurance through its World Nomads Group business.
NIB’s Half Year Report
NIB announced that underlying operating profit (UOP), NIB’s preferred profit measure, grew by 18.6% to $114.3 million. This growth was partly driven by total group underlying revenue growth of 10.9% to $1.2 billion.
NIB’s net profit after tax increased by 4.8% to $74.3 million.
NIB said that Australian Resident Health Insurance (ARHI) membership increased by 1.1%, or 6,400, compared to membership growth of 0.3% across the whole industry. NIB’s 2019 premium insurance increase is the lowest in 16 years.
NIB’s international students and workers business grew UOP by 15.5% to $17.9 million. The New Zealand segment grew revenue and its membership base, but UOP fell $9.5 million because of an increase in expense claims.
With the World Nomads Group business, sales globally were up 14.4%, but domestic sales were down 22%, leading to a combined UOP of $2.3 million, which management called “unsatisfactory”.
NIB has decided to pay an interim dividend of 10 cents per share, which is an increase of 11.1% compared to a year ago.
NIB Management Comments
NIB Managing Director Mark Fitzgibbon said: “A combination of pricing, organic growth, an increased contribution from our new GU Health business and improved claims management saw our net profit margin increase.
“Unfortunately consumer sentiment is running against most forms of discretionary spending including private health insurance. We also need the community and policymakers to better appreciate how private health insurance must play a more significant role in our healthcare system given the extreme pressure on our tax-funded Medicare and public hospitals.”
Is NIB a buy?
NIB said it doesn’t think the second half will be as good as the first due to unfavourable claims seasonality and likely weak market conditions.
However, the company still increased its UOP guidance to be “at least” $195 million, compared to previous guidance of at least $190 million, with statutory operating profit of at least $178 million, compared to previous guidance of at least $168 million.
Despite the upgrade, the NIB’s share price is down 1% in early trade. I think NIB faces some serious structural issues at the moment, but I do prefer it to Medibank Private Limited (ASX: MPL) because a bigger percentage of NIB’s business isn’t focused on Australian health insurance. For growth, I’d rather go for one of the shares mentioned in the free report below.
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