Healthy upside: Expert rates Medibank (ASX:MPL) share price as a good buy

The Medibank Private Limited (ASX: MPL) share price has been rated as a buying opportunity according to one investment expert.

Credit Suisse is the broker that currently rates the business as a buy.

Why? It still thinks the company is a buy after having a look at the company’s result and guidance.

Let’s have a look at how Medibank performed in the first six months of the financial year.

Medibank’s half-year result

Australia’s largest private health insurance business reported that for the six months to December 2021 it saw its net residential policyholders grow by 28,100, or 1.5% in percentage terms. Over 12 months, its policyholder growth was 3.3%. In January it added another 4,500 in what it described as an “extremely competitive” market.

The company put a lot of this growth down to younger people and those who hadn’t had private health insurance before. The Medibank brand has seen six consecutive quarters of growth, the first time in almost nine years.

Total premium revenue was up 3.8% to $2.45 billion, whilst the management expense ratio was down 30 basis points to 7.2%. This helped group operating profit rise by 12.3% to $286.5 million. Profitability can have an important influence on the Medibank share price.

However, group net profit after tax (NPAT) declined 2.7%, with the net investment income coming in at $30.9 million (down from $71.8 million in the prior corresponding period).

The company also decided to declare an interim dividend of 6.1 cents per share, representing 79.1% of underlying net profit.

FY22 outlook

The guidance can have an impact on the Medibank share price as investors factor in changes to their expectations for the rest of the financial year.

In FY22, Medibank is aiming to achieve policyholder growth of between 3.1% to 3.3%, with continuing growth of the Medibank brand.

Turning to claims, the business is expecting the underlying average net claims expense per policy unit to be around 2.3% among resident policyholders.

The FY22 health insurance management expenses are expected to be around $530 million. It’s targeting $15 million of productivity when it comes to the health insurance management expenses.

Management is also looking at possible ‘inorganic’ growth for Medibank Health and the health insurance segment.

Medibank share price target and valuation

Credit Suisse’s price target on the private health insurance giant is $3.50. That suggests a potential rise of 14% over the next 12 months, if reality meets the price target.

The broker liked the recent result which included an increase in profitability and a rise in market share.

Based on the latest Credit Suisse estimates, the Medibank share price is valued at 19x FY22’s estimated earnings with a projected grossed-up dividend yield of 6.5%.

The post Healthy upside: Expert rates Medibank (ASX:MPL) share price as a good buy appeared first on The Motley Fool Australia.

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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 Bruce Jackson.

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