In what could be a serious blow to the Federal government, many investors appear to regard the Medibank private IPO price range of between $1.55 and $2.00 as overpriced.
In a survey on Fairfax Media's The Age Markets Live webpage, 43% of respondents to a poll suggest it is overpriced, 34% are unsure, while just 23% think the price is attractive.
On that price range, the company will be trading on a prospective P/E ratio of between 16.5x and 21.3x earnings. Medibank is also proposing to pay a fully franked dividend in the 2015 financial year of 4.9 cents per share, equating to an annualised yield of between 4.2% and 5.4%.
That appears expensive when you compare those figures to many other companies. Woolworths Limited (ASX: WOW) is arguably one of Australia's best businesses, and yet it is trading on a prospective P/E ratio of 16.8x and forecast to pay a fully franked dividend yield of 4.2% in 2015. In fact, given the recent market volatility and the near 10% fall in the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), many stocks are looking more attractive than they were six weeks ago.
And when you consider that Medibank is constrained by the government on how much it can raise premiums, thus limiting its potential earnings per share growth, simply buying Woolworths on any pull back looks the better option.
Of course that's not comparing apples with apples, so let's take a look at similar ratios for NIB Holdings Limited (ASX: NHF). Based on consensus forecasts, NIB is trading on a prospective P/E ratio of 17.2x, and expected to pay a dividend yield of around 3.7%. But NIB boasts better margins than Medibank, earning around 5%, while Medibank makes 3.6 cents for every dollar of premium.
We still won't know the final price, which will be revealed on Tuesday, November 25, although retail investors will need to apply by November 14.
Clearly there's no reason to rush in, with more details about the expected price likely to be reported in the media between now and then. I'll be doing likewise, watching and waiting.
