Shares in Australia's largest private health insurer (PHI) Medibank Private Ltd (ASX: MPL) are trading near their all-time low.
For retail investors, the initial public offer (IPO) for shares was priced at $2. With the stock closing Wednesday's trading session at $2.05, Medibank's shares are within a whisker of the original float price and could potentially offer an appealing entry point for investors who either:
- missed the IPO
- didn't receive as many shares as they wanted
- have locked in a profit since the shares first traded in late November 2014 and are now looking to rebuild their stake.
No rush to buy
While from a pricing point-of-view some investors may see the current weakness as an opportunity to purchase an industry leading, dividend-paying stock there are reasons to tread warily…
As a recent research report from broker Morgan Stanley has highlighted the outlook for growth is less than spectacular for Medibank and with the initial hype that surrounded the IPO having now surpassed, the cold hard facts are beginning to be laid bare.
Amongst the biggest concerns is growing consumer demand for lower priced, basic PHI cover. This is leading to Medibank's low margin brand 'ahm' cannibalising its premium brand. Likewise, it is leading policy holders towards insurers viewed as more price competitive such as NIB Holdings Limited (ASX: NHF).
Another concern is that hospital operators such as Ramsay Health Care Limited (ASX: RHC), doctors and medical equipment makers are capturing a greater share of the profit pie at the expense of PHI -a scenario which is going to be difficult for insurers such as Medibank to turn around.
So, while some investors may consider Medibank to be back in the 'buy zone' now that its share price is near its original IPO level, I'd urge shareholders to consider the outlook for Medibank carefully and utilise the new information which has come to light since the company floated.
