Health insurance provider NIB Holdings (ASX: NHF) pleased investors on Monday when it reported another solid performance for the financial year, which saw a significant acquisition made in New Zealand as well as growth in its number of policyholders.
Although net profit after tax (NPAT) fell by 0.6% for the year to $67.2 million (this was affected by one-off costs), the group announced a 4.3% increase in pre-tax underwriting profit, which was driven by an impressive 14.8% increase in premium revenue to $1.3 billion. Earnings per share also improved to 15.3c compared to the previous year's earnings of 14.8c per share.
Despite tough market conditions – caused by claims inflation, constraints by government regulation regarding premium pricing, as well as recent policy changes – the group still recognised strong top-line growth, disciplined cost control, improved underlying profitability and expanded further into New Zealand, according to NIB's Managing Director, Mark Fitzgibbon.
Priorities
Whilst the group's Australian Resident Health Insurance (ARHI) business remains its top priority, the report could have weighed on investors a little with Fitzgibbon admitting that it will become more difficult to lift earnings whilst its growth prospects will be "more modest" at around 5% to 5.5%. The tough market conditions restricted ARHI's net underwriting profit to $59 million, which was 8.6% below the result in FY2012.
On the other hand, the company admitted that it had anticipated the slowed down growth and, as such, would continue to strive for growth in other areas such as international workers and students whilst also expanding further into New Zealand. Growth in these areas for the year were strong, whereby they contributed 20% of the total underwriting profit, compared to just 9% last year.
During the year, NIB also acquired TOWER Medical Insurance in New Zealand for $80.6 million, which it believes will provide the company with "an opportunity to emulate the success we have achieved in Australia in recent years through brand building, product design and outstanding customer service." The TOWER purchase also incurred one-off costs, including a $3.4 million acquisition cost.
Outlook
Currently, the company is forecasting consolidated operating profit for the next year to be in the range of $73 million and $80 million, in which it would need to defy claims inflation and changing policies to achieve. It believes that low interest rates, population growth and growing concerns regarding the public hospital system will aid it towards this profit goal.
Foolish takeaway
Although growth in its priority business is slowing, NIB's strong management team will continue to guide the company towards other strategic investments. As such, the company maintains fantastic growth opportunities, which should help investors recognise significant returns in the long run. Currently priced at $2.12 per share, the group also offers an attractive 4.7% dividend yield.
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Motley Fool contributor Ryan Newman owns shares in NIB Holdings.
