The share price of Medibank Private Ltd (ASX: MPL) continues to trade above $2.40 which means retail investors who took stock in the initial public offering (IPO) nearly one year ago remain well in the money.
In fact, not only are shareholders sitting on capital gains of around 20%, but they have also handily outperformed the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) which is essentially flat since the IPO in late November 2014.
Interestingly, shareholders in smaller peer NIB Holdings Limited (ASX: NHF) have also enjoyed a good run in the past 11 months with the stock up a solid 16%.
With Medibank Private having traded as high as $2.59 post-IPO, the question for investors to ponder now is where the stock is headed next…
- Having beaten prospectus forecasts with a net profit after tax of $292 million (on a pro forma basis) and operating with a debt-free balance sheet, the market leader in the health insurance sector remains in a strong position.
- Medibank appears alert and on the front foot to customer demands for lower health insurance premiums and has been responding by managing its own cost base with a reduction in the group's Health Insurance management expense ratio from 9.2% to 8.6%.
- Medibank has also moved to increasingly partner with hospital groups to improve quality and affordable outcomes for members, while at the same time growing its competitively positioned ahm brand.
- At Medibank Private's recent Annual General Meeting (AGM) management provided an outlook of the group's trading performance financial year to date. The following comment was made: "we have seen a continuation of the affordability challenges that have contributed to the trend towards cover reductions and customer churn, and continue to impact premium revenue growth."
Despite the subdued update, management is still targeting premium revenue growth above 5.5% and an operating profit above $370 million in the current financial year. That would suggest Medibank Private is trading on a forward price-to-earnings ratio of around 21x which looks a pretty full price to pay.
