Telehealth Expansion And AI Automation Will Transform Future Member Experiences

Key Takeaways

• Strategic investments in digital health services and provider networks are expected to boost revenue growth, customer satisfaction, and improve margins.
  
• Productivity programs utilizing AI and automation aim to lower operating expenses, enhancing net earnings and cost efficiency.
  
• High claims inflation, regulatory changes, and economic challenges might pressure nib's profitability and margins across New Zealand, international, and travel insurance segments.

Catalysts

Engages in the underwriting and distribution of private health, life, and living insurance to residents, international students, and visitors in Australia and New Zealand.

• Nib's digital innovation and expansion of No Gap and Known Gap provider networks, which cap out-of-pocket costs and enhance member experiences, are expected to drive future revenue growth and improve customer satisfaction, impacting net margins positively.
  
• The company's multi-year contracts with major hospital groups in Australia are expected to enhance provider relationships, leading to cost predictability and potentially better net margins through reduced out-of-pocket costs and improved access for members.
  
• Expansion of telehealth services through their Midnight Health platform and other digital health service offerings is anticipated to meet the growing demand for convenient healthcare, which could drive future revenue growth and improve earnings through increased customer acquisition and retention.
  
• Strategic investments in scaling the virtual health, home care, and corporate health sectors present significant growth opportunities in non-traditional healthcare value pools, expected to positively affect revenue and earnings.
  
• Ongoing group-wide productivity programs, including increased use of AI and automation, aim to deliver cost efficiencies and improve margins by reducing operating expenses, ultimately enhancing net earnings.

nib holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming nib holdings's revenue will grow by 3.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.6% today to 5.9% in 3 years time.
• Analysts expect earnings to reach A$236.3 million (and earnings per share of A$0.49) by about April 2028, up from A$163.0 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 17.4x on those 2028 earnings, down from 20.5x today. This future PE is lower than the current PE for the AU Insurance industry at 20.2x.
• Analysts expect the number of shares outstanding to grow by 0.27% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.24%, as per the Simply Wall St company report.

nib holdings Future Earnings Per Share Growth

Risks

• High industry-wide claims inflation in New Zealand has resulted in losses, and while recovery is anticipated, there is a risk that continued inflation could impact future profitability and net margins.
  
• Tightening visa regulations and changes in international student and worker visas could impact the revenue and margins of nib's international business.
  
• Uncertainty around regulatory changes, particularly regarding the NDIS Navigator model, could affect nib Thrive's profitability and alter revenue structures in the disability support segment.
  
• Ongoing integration expenses and one-off costs due to the Thrive integration, together with organizational redesign, might continue to pressure net margins in the near term.
  
• The travel insurance business is facing challenges due to a tough economic climate, with profitability below expectations, which could affect overall revenue and net margins.

Valuation

• The analysts have a consensus price target of A$7.013 for nib holdings 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$8.1, and the most bearish reporting a price target of just A$5.55.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$4.0 billion, earnings will come to A$236.3 million, and it would be trading on a PE ratio of 17.4x, assuming you use a discount rate of 6.2%.
• Given the current share price of A$6.88, the analyst price target of A$7.01 is 1.9% 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.