If you're wanting to gain exposure to the private health insurance industry, there are two key options to choose from on the ASX 200 index.
These are of course Medibank Private Ltd (ASX: MPL) and NIB Holdings Limited (ASX: NHF) shares.
But which is the best one to buy right now? Let's have a look at what Goldman Sachs is saying.
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Should you buy Medibank or NIB shares?
At present, the broker believes that NIB is the one to buy. It said:
We currently have a preference for NHF in this space reflecting strong underlying top-line growth through policyholder growth and premium rate increases, greater diversity of earnings outside of regulated resident health insurance and relative valuation appeal on a 1-yr forward P/E basis vs. MPL and also vs. history.
Goldman Sachs has reaffirmed its buy rating and $8.10 price target on the company's shares. Based on the current NIB share price of $7.19, this implies potential upside of 12.5% for investors over the next 12 months.
In addition, the broker is forecasting fully franked dividends per share of 30.8 cents in FY 2024, 30.5 cents in FY 2025, and then 32.5 cents in FY 2026. This equates to dividend yields of 4.2%+, which brings the total potential 12-month return closer to 17%.
CEO exit
Goldman also notes that it remains positive on NIB despite it announcing the exit of its long-serving CEO, Mark Fitzgibbon, who is stepping down after 22 years at the helm.
The broker believes it will be business as usual given that the CEO-elect is Ed Close (current CEO of NIB's ARHI business). It said:
Prima facie, we believe investors could view the departure of Mr. Fitzgibbon as a loss given he was well regarded and his successful track record. That said, strategically, as Mr. Close oversaw much of the operations, we would not expect the appointment to result in a material change to NHF's core ARHI business.
Outside this, Goldman laid out its buy thesis for NIB shares as follows:
We are Buy-rated on NHF given: 1) it offers defensive exposure to the private health insurance sector which is experiencing favourable operating trends, 2) the claims environment (utilisation / inflation) remains benign, 3) NHF policyholder growth has been better than industry, 4) Expense buffers available to support margins and 5) Strong approved rate increases.
Medibank rated neutral
For Medibank, the broker has reaffirmed its neutral rating and $3.88 price target. This is broadly in line with where its shares trade at present.
Although the broker is a fan of the company, it just doesn't see enough value in its shares to warrant a buy recommendation. It explains:
We like MPL given: 1) it offers defensive exposure to the private health insurance sector which is experiencing favourable operating trends, 2) the claims environment (utilisation / inflation) remains benign, 3) policyholder give backs are supporting retention. However, we are Neutral reflecting: 1) MPL's relatively weaker policyholder growth vs. NHF, 2) Valuation slightly higher vs. NHF on a 1-yr forward P/E basis. 3) Some risk related to cyber security legal cases and investigations.
