The government has commenced the process of listing Australia’s largest health insurance provider, Medibank Private, by opening pre-registration register. The pre-registration process will close on October 15 and the prospectus is expected to be available by the end of the month with a listing scheduled before the end of the year. You can pre-register here.
When announcing the pre-registration, Finance Minister Mathias Cormann said that Australian residents, who pre-register to receive a prospectus and then apply for shares, could receive a preferential allocation of shares.
And if you’re a Medibank Private or AHM policyholder, who pre-registers and then applies for shares, you could receive a greater preferential allocation.
Policyholders need to be permanent residents of Australia and policyholders before 28 September 2014.
The opportunity
When we first heard that the government was looking at privatising a number of national assets Switzer Super Report co-founder and expert, Paul Rickard, took a closer look at Medibank Private.
Here’s a recap.
Medibank is Australia’s largest heath insurer, with 3.8 million customers and a market share of 29%. With its Medibank and AHM health insurance brands, it competes against 34 heath funds. Medibank Health Insurance has won Canstar’s award for ‘Outstanding Value’ for the last four years.
Private health insurance premium revenue of $5.3 billion accounted for 91% of gross revenue in the year to 30 June 2013. It also earned $498 million in revenue from its ‘Health Solutions’ business, which provides healthcare services to businesses, government and communities across Australia and New Zealand. It has a team of healthcare professionals providing a national network of healthcare clinics, as well as through telephone and online channels. For example, it operates ‘The Travel Doctor’, NURSE-ON-CALL, Healthline in New Zealand, workplace health services and co-ordinates healthcare services for the 80,000 Australian Defence Force members.
Medibank also provides life insurance, travel insurance and pet insurance, which it sells on a commission basis.
Medibank’s financial results for the last two years are detailed below:
Valuation
For a valuation calculation, we drew on a comparison with Newcastle-based NIB Holdings to come up with a PE multiple in the range of 13 to 16. Applying that multiple to a 2014 profit estimate of $225 million, (Medibank has said that investment earnings will be impacted by the payment of a $300 million special dividend to the Government in August 2013) we came up with a valuation for Medibank in the range of $3 billion to $3.6 billion.
That is at the lower end of what some analysts are understood to be valuing the company at now, which is believed to be as high as multiples of 20 or $4.5 billion.
But even at our lower valuation, we are still positive on the listing and optimistic that a cutting of the fat, that often happens when companies privatise, and a renewed vigour, once the company is freed from government restraint, will give the business a boost.
“I am still confident about this IPO and have already pre-registered. There is no downside in pre-registering, ” Paul says.
“It is the government’s first IPO, so they’re hardly going to want to disappoint investors and even with the higher valuations – which I think might be a bit overblown – Medibank has the potential to be one of the better IPOs this year.”
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