The NIB Holdings Limited (ASX: NHF) share price rose 1% to $6.63 after it released its annual results this morning. Company revenues rose 11% to $2,267 million, and net profit after tax also grew 11% to $132.4 million. Earnings per share rose 8% to 29.4 cents per share, while NIB paid a total of 20 cents per share in dividends, up 5% on the previous year.
NIB ended the year with approximately $230 million in total debt and $192 million in cash for a net debt position of ~$38 million. NIB reported net tangible assets per security of 53 cents as of 30 June 2018.
CEO Mark Fitzgibbon reported that NIB's membership base grew 3%, ahead of industry growth of 1%, suggesting that NIB continues to take market share from the incumbents like Medibank Private Ltd (ASX: MPL). Combined with a 3.93% increase in premium prices (one of the lowest increases in years), this had a strong contribution to NIB's results.
NIB also reported strong growth in its international inbound health insurance "iihi" as well as its World Nomads Group (WNG) travel insurance. New products such as a combined health insurance and travel insurance for NZ residents are solving problems with innovation.
NIB also expects to launch critical illness insurance in China in the second half of the year subject to regulatory approval. While NIB won't be carrying underwriting risk (that is – it won't be paying any claims), it will be using its product design and pricing expertise to sell the product, which seems a low-risk way of entering what is potentially a very large target market.
Notably in its outlook for the future NIB stated that it may have higher capital requirements following an upcoming APRA review of the sector. While any requirements might not be in place until 2021, NIB has implemented a dividend reinvestment plan. Retained earnings (i.e., the portion of profit not paid as dividends) will also contribute to growing its capital. All else being equal, a higher capital requirement leads to a lower overall return on equity, although any change appears unlikely to have a major negative effect on NIB's business.
In the financial year 2019, NIB provided guidance for policyholder growth of 3%-4% and underlying operating profit (UOP) of at least $180 million, compared to $184 million in UOP this year. Effectively NIB is guiding for flat earnings. The company also stated it had an appetite for "industry rationalisation" which I interpret as acquiring other small insurers and consolidating them.
NIB has been a great business but I think it is very fully priced at the moment and I would call it a hold today. I would also struggle to reinvest my dividends at this price (as the reinvestor is also effectively buying shares) and would suggest that readers consider taking the cash instead.
