Shares in Medibank Private Ltd (ASX: MPL) fell to $2.18 on Friday, its lowest level for the year and just 5% above the all-time low of $2.08 hit shortly after listing in 2014. To make matters worse, Medibank's shares have underperformed the market by nearly 20% in 2015! Medibank's shares have plunged 9.5%, while the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) is up 7.5%.
What's Happened?
In the opinion of a number of market analysts, investors are starting to understand that the government may have found the perfect time to sell the insurance company. Just like the tranche 2 of Telstra Corporation Ltd (ASX: TLS) that sold for $7.40, the government may have sold the company at its peak valuation.
The reasons for this are three-fold:
- It's going to be harder for Medibank to grow in the future. The cost of private health cover is becoming prohibitively expensive for the average consumer. Health insurance premium inflation has rocketed ahead of general inflation over the last 10 years, with the average premium for comprehensive cover well over $1,000 per year per person. New, low-cost entrants are also stealing market share from Australia's largest insurer.
- It's not the dividend feast many had expected. Medibank's first year yield of around 4% is beaten by other large companies with decent growth prospects like Telstra, QBE Insurance Group Ltd (ASX: QBE), Suncorp Group Ltd (ASX: SUN), BHP Billiton Limited (ASX: BHP), and Commonwealth Bank of Australia (ASX: CBA).
- Key personnel don't appear to be performing. Some analysts have picked up on the fact that there has been a significant management reshuffle. The IPO prospectus declared that the company would have 'a highly experienced board and management team with significant business and industry experience'. The Chief Customer Officer has left after disappointing customer growth (or lack of) with other changes in the works.
The biggest concern for me though is that Medibank is already lagging the index and more and more market commentators are predicting a correction!
