Myhealth Expansion Will Drive Future Customer Retention

Key Takeaways

• Expansion in primary care and strategic investments are set to drive long-term revenue and profit growth.
  
• Focus on efficiency and strategic partnerships is expected to boost margins and enhance customer retention.
  
• Intense competition, economic pressures, and costs related to cybercrime and aggregator reliance could challenge Medibank's growth, profitability, and market stability.

Catalysts

Provides private health insurance and health services in Australia.

• Strategic investment in Medibank Health and primary care expansion through Myhealth is expected to drive future revenue growth, with the aim to achieve a 15% annual organic profit increase between FY '24 and FY '26.
  
• Medibank's focus on productivity and operational efficiency, demonstrated by a $10 million productivity savings achievement and targeting further savings in FY '25, is likely to positively impact net margins.
  
• Continued expansion and enhancement of no-gap services, corporate insurance offerings, and digital engagement are anticipated to improve customer retention and acquisition, supporting revenue growth.
  
• The anticipated growth in the non-resident insurance segment, particularly through university partnerships and expansion in the student and worker markets, is likely to enhance revenue and segment profit.
  
• Strategic partnerships and innovation in care delivery and prevention could differentiate Medibank, improve customer value proposition, and enhance long-term earnings stability.

Medibank Private Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Medibank Private's revenue will grow by 5.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.1% today to 6.9% in 3 years time.
• Analysts expect earnings to reach A$649.3 million (and earnings per share of A$0.24) by about February 2028, up from A$492.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.9x on those 2028 earnings, down from 22.2x today. This future PE is lower than the current PE for the AU Insurance industry at 24.2x.
• Analysts expect the number of shares outstanding to grow by 0.31% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.9%, as per the Simply Wall St company report.

Medibank Private Future Earnings Per Share Growth

Risks

• Intense competition in the health insurance market and the temporary nature of offers and discounts may lead to unsustainable growth, affecting Medibank's long-term revenue and market share.
  
• Economic conditions and cost of living pressures are leading to increased lapses and policyholder switching, which could impact net earnings and revenue stability.
  
• Increasing reliance on sales through aggregators, as seen in ahm, can drive up acquisition costs and compress net margins.
  
• Uncertainty regarding changes to private and public health systems, like the New South Wales policy, could pose risks to claims expense projections and net margins.
  
• Elevated costs associated with cybercrime resilience and litigation related to past breaches could pressure profitability and reduce net earnings in the near term.

Valuation

• The analysts have a consensus price target of A$4.114 for Medibank Private based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$4.65, and the most bearish reporting a price target of just A$3.8.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$9.4 billion, earnings will come to A$649.3 million, and it would be trading on a PE ratio of 20.9x, assuming you use a discount rate of 5.9%.
  
• Given the current share price of A$3.97, the analyst price target of A$4.11 is 3.5% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.