Medibank Private Ltd (ASX: MPL) has released its first set of full-year results since becoming a publicly-listed company, and boy was the market impressed.
The health insurer revealed a 3.2% lift in group revenue to $6.58 billion and a 13.3% lift in underlying net profit after tax (NPAT) to $285.3 million compared to the prior corresponding period (pcp). This result was well ahead of the $258.2 million forecast in the group's prospectus.
As a result, Medibank was able to deliver on its promised inaugural dividend to shareholders, announcing a distribution of 5.3 cents per share.
Here are some of the other important figures you need to be aware of:
- Earnings per share of 10.4 cents
- Claims expense up 4.7% to $5.08 billion (growing slower than the 5.1% growth in Health Insurance revenue)
- Members grew 0.3% from 3.87 million to 3.9 million – a result below the market's average growth rate
- Medibank brand volumes were down marginally but the discount ahm brand grew strongly
During the 12 months to 30 June 2015, Medibank's growth was generated in its Health Insurance segment which accounted for 90% of group revenue and 96% of segment operating profit for the year.
Health Insurance
Although premium revenues from the segment were slightly below its prospectus forecast at $5.93 billion (up 5.1% compared to the pcp), an improvement in margins allowed for a strong lift in operating profits. Indeed, the division's gross margin lifted 70 basis points to 14.2% during the period while its operating margin rose 120 basis points to 5.6%.
Medibank's management expense ratio, or MER, also rose 60 basis points during the second half of the year, although this was largely expected to be the case with management stating that marketing and project spend would be skewed to the latter half of the year. For the full-year the ratio decreased 50 basis points to 8.6% which is a significant improvement in the group's overall efficiency.
The division recorded a massive 32.5% improvement on operating profit. This was enough to offset a fall in contributions from the Complementary Services segment as well as the group's investment income.
Complementary Services & Investment Income
Revenue from the Complementary Services division fell 11.3% to $641.2 million, mainly as a result of the non-renewal of the immigration contract with the Commonwealth Government.
Meanwhile, net investment income plunged 17.6% to $93.8 million which was predominantly due to the lower interest rate environment as well as lower returns from equity markets. Indeed, the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) gained just over 1% during the period, compared to a gain of around 13% during the previous 12 months.
Notably, the lower contributions from Complementary Services and Investment Income were both anticipated by management.
The market's response says it all
Clearly, the market was very impressed with Medibank's results today bidding the shares a remarkable 16.7% higher early in the session. The stock hit a high of $2.35 after recently trading for just $1.99 (below the price retail investors paid during the float).
During the next 12 months, the company will focus on introducing new profits to drive growth and on how to improve its brand positioning "to give customers a clearer and more compelling value proposition".
Beyond that, although management sees issues related to customer affordability continuing, it also believes the industry will continue to benefit from a growing, ageing population which should provide tailwinds for it, together with rival NIB Holdings Limited (ASX: NHF) and various other healthcare operators.
Although there are still risks associated with an investment in Medibank Private, today's results were certainly encouraging and are a step in the right direction for investors.
