What's the outlook for the Medibank share price in FY23?

Are Medibank shares the ticket to healthy returns?

| More on:
A women has her eyes checked at the optometrist.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • Medibank is Australia's largest private health insurance business
  • It had a solid operating result in FY22 as claims remained low
  • Medibank is expecting further policyholder growth in FY23

The Medibank Private Ltd (ASX: MPL) share price has been volatile in recent months. It has managed to rise slightly in 2022 – up 3.5% – but since 30 August 2022 it's actually down by 5.6%.

The last three years have been an interesting time for private health insurance businesses.

There was a lot of disruption caused by the COVID-19 pandemic. But, that also led to a number of elective surgeries being delayed, which may have helped increase Medibank's profit during this period.

FY22 saw net resident policyholder growth of 60,900 (or 3.2%). Revenue rose 3.2%, with operating profit rising 12.5% to $594.1 million. However, the actual net profit after tax (NPAT) fell 10.7%. That was after the net investment income of $120 million in FY21 turned into a net investment expense of $24.8 million in FY22, as investment markets plummeted in the last few months of FY22.

Underlying NPAT, which aims to remove that investment volatility, rose by 9.1% to $435.1 million. The annual dividend per share increased 5.5% to 13.4 cents.

FY23 outlook

Growth within the business could have a positive effect on the Medibank share price.

In terms of FY23 policyholder growth, it's expecting a rise of 2.7%. That's assuming a modest decline in the growth rate of industry participation.

Looking at the comments about claims, it's expecting the underlying net claims expense per policy unit to grow. The growth rate of 2.3% in FY22 is its "best indicator" of growth in FY23 among resident policyholders.

The company expects productivity with its management expenses to largely offset the inflation of expenses.

In terms of customer relief, it continues "to assess claims activity and any permanent net claims savings due to COVID will be given back to customers through additional support in the future".

Management is focused on growth for the business. It's looking at both organic growth and acquisition opportunities for Medibank Health and health insurance, supported by a "strong capital position". It had health insurance business-related capital of $983.7 million at 30 June 2022, which was at the top end of its targeted range.

It has unallocated capital of $148 million, which "provides flexibility to fund future inorganic growth" and it will "consider further capital management if suitable opportunities do not arise".

What do experts think of the Medibank share price?

The brokers Citi and Ord Minnett both rate Medibank as a buy. Both brokers thought the FY22 result was good.

Ord Minnett has a price target of $3.75 on the business, which implies a possible rise of around 5% over the next year.

Meanwhile, Citi has a price target of $4. That suggests that the Medibank share price could rise by more than 10% over the next year.

Citigroup is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Broker Notes

A man in his 30s holds his laptop and operates it with his other hand as he has a look of pleasant surprise on his face as though he is learning something new or finding hidden value in something on the screen.
Broker Notes

How this undervalued ASX All Ords share could rocket 80% in a year

A leading fund manager expects a big turnaround for this beaten-down ASX All Ords stock.

Read more »

A car dealer stands amid a selection of cars parked in a showroom.
Broker Notes

Up 77% in a year, guess how much more upside Macquarie tips for Eagers Automotive shares

Macquarie released its latest analysis on Eagers Automotive fast rising shares this morning.

Read more »

Frustrated and shocked business woman reading bad news online from phone.
Broker Notes

Guess which ASX 200 share Goldman Sachs just downgraded

The broker is calling time on this stock's rally.

Read more »

A man clenches his fists in excitement as gold coins fall from the sky.
Broker Notes

These ASX 200 shares can rise 20% to 50%

Let's see which shares are being tipped to rocket from current levels.

Read more »

A man holds his head in his hands, despairing at the bad result he's reading on his computer.
Broker Notes

Why Guzman Y Gomez shares are a sell

Goldman Sachs has given its verdict on the burrito seller.

Read more »

A man pulls a shocked expression with mouth wide open as he holds up his laptop.
Broker Notes

Top brokers name 3 ASX shares to buy today

Here's what brokers are recommending as buys this week.

Read more »

A couple makes silly chip moustache faces and take a selfie on their phone.
Broker Notes

Macquarie sees more upside in Telstra shares – What are they worth?

Telstra shares are up 34% over the past year, and Macquarie thinks there's more to come.

Read more »

A happy male investor turns around on his chair to look at a friend while a laptop runs on his desk showing share price movements
Broker Notes

What is Morgans saying about TechnologyOne, Wesfarmers, and Xero shares?

Let's see what the broker is saying about these shares.

Read more »