Shares of NIB Holdings Limited (ASX: NHF) today soared as much as 7% higher before falling back to 4% during mid-morning trade on the ASX.
The catalyst for the upswing in Nib's share price came in the form of an updated profit guidance at the private health insurer's annual general meeting. Following a bumper first quarter performance nib Chief Financial Officer, Michelle McPherson, meaningfully upgraded the company's full-year guidance.
"Nib is forecasting FY16 consolidated statutory operating profit of $90 million – $100 million (previously $85 million – $90 million) with underlying operating profit of $102 million – $114 million (previously $96.3 million – $103.3 million)," the company's ASX announcement read.
Since listing in 2007, nib's shareholders have enjoyed total returns (dividends plus capital gains) of 519%, according to the company's presentation, compared to the All Ordinaries Accumulation Index return of just 15%. Nib has been able to achieve outsized returns by keeping a lid on costs, improving returns on equity (ROE) and consistently growing insurance policy revenue above the industry average.
Looking ahead the Australian health insurance business (arhi) has an organic growth target of 1.5x to 2x the industry's growth rate over FY16, with a net profit margin between 5% and 5.5%.
Pleasingly, nib said its dividend payout ratio will fall comfortably between 60% and 70% of full-year net profit after tax.
Based on last year's payout ratio of 67% of net profit, nib shares currently trade on a dividend yield of 3.3% fully franked. This compares to the 3.6% dividend yield forecast to be offered by rival Medibank Private Ltd (ASX: MPL) and the 3.9% for shares in general insurer QBE Insurance Group Ltd (ASX: QBE).
Should you buy NIB shares?
According to analysts polled by The Wall Street Journal, fair value for nib shares is around $3.48. At their current price of $3.68, I think nib appears fairly valued. However, given its long-term tailwinds, generous dividend and experienced management team I think nib shares deserve a spot on savvy investors' watchlists.
