This week is the start of a new series about shares I particularly like, where I focus on one great share pick for the week.
Today, it's NIB Holdings Limited (ASX: NHF).
What do they do:
NIB is an Australian health insurer providing health and medical insurance to over 1 million Australian and NZ residents, and international visitors and students.
Performance:
Over the past month, the company's been down by around 2.5% overall, but it's just outperformed the S&P/ASX 200 (Index:^AXJO)(ASX:XJO) and is crushing the financial sector by around 5%. The company has revenue growth of 9.6%, EPS growth of 10.5%, and return on equity of 22%.
Dividend:
NIB pays a nice little $0.06 cent fully franked dividend, with a yield of 3.8%, on a payout ratio of just 65%.
But here's what I really like about NIB:
Late last year, NIB announced a new distribution agreement with Qantas as part of its Frequent Flyer program. This should see some serious upside to NIB's revenues. NIB's health insurance will be marketed to Qantas' 11 million FF customer base under the Qantas Assure name from 2016.
Qantas Assure is targeting 2%-3% of the $19 billion private health insurance market in Australia, it's estimated that NIB currently holds around 8%.
Qantas Assure policyholders will be able to earn Qantas points using wearable fitness technology. It's a great partnership for both with NIB providing its health insurance, risk assessment and underwriting capability, while Qantas' Loyalty program provides marketing, data, and customer retention expertise.
People don't want to change insurance policies
If you're not familiar with the term 'switching cost' I'll explain. Let's say you have a mortgage with National Australia Bank Ltd (ASX: NAB), or your favourite search engine is Google, and it's a real pain to switch! Well it's the same for NIB.
People don't want to change health insurance providers, which makes it really difficult for NIB's competitors to take their clients. This advantage is further strengthened by the complexity in insurance products and the difficulty in comparing policies.
But that's not all. Healthcare providers such as private hospitals and providers of ancillary services have service-level agreements with NIB, which set predetermined fees for services.
In short:
- NIB and Medibank Private enjoy favourable demographics, as the only listed private health insurers
- Increasing pressure on the public health system and the government's push for the private sector to play a greater role underpin the positive outlook for NIB
- NIB is well placed to leverage the growing market for Australians travelling overseas for cosmetic health services
What else do I need to know:
NIB is a great company, punching above its weight in the financials sector with heavyweights such as Medibank Private Ltd (ASX: MPL), AMP Limited (ASX: AMP), and Suncorp Group Ltd (ASX: SUN), all of whom have outperformed their sector over the past month, by 21%, 5%, and 3.5% respectively.
NIB's numbers:
Market Cap: $1.41 Billion
Share Price: $3.21
P/E Ratio (TTM): According to Commsec, NIB's trailing P/E is 18.
