Medibank Private first day of trading didn’t quite live up to expectations, but mum and dad investors picked up a tidy profit anyway.
There were cheers at the Australian Securities Exchange as the private health insurer debuted at $2.22 per share at midday.
But that was as good as it got, with the price falling back to $2.14 by the end of the day, just below the $2.15 per share institutional shareholders paid.
Retail investors, who bought up about 60 per cent of the company in the float, fared much better thanks to the federal government’s guarantee they would not pay more than $2 per share.
So an investor who bought $5,000 worth of Medibank shares finished the day $350 richer, on paper at least.
But the biggest winner was the federal government, which pocketed a $5.7 billion windfall, which will now be put towards its asset recycling program.
OptionsXpress market analyst Ben Le Brun said Medibank’s day one performance would be a disappointment to many, and showed investors were concerned about the high price tag placed on the insurer.
“I certainly would have predicted it to close above that opening price but it just didn’t have the legs,” he said.
“It’s still a good result for mum and dad investors but there would maybe be some disappointment for those expecting it to move above $2.20.”
At $2.14 per share the insurer is valued at roughly $5.9 billion or about 23 times the amount of money it earned last year, which is somewhere between fair value and overpriced, depending on who you speak to.
But managing director George Savvides isn’t worried about the insurer’s ability to justify that high valuation.
“We’re very confident about the ability of the company to manage healthcare costs, to manage its own operating costs and deliver the results that are necessary to meet expectations,” he said.
“We won’t be distracted by volatilities that occur on stock markets from time to time.”
Medibank expects to lift its full year profit more than 10 per cent to $282 million this financial year.
But Pitcher Partners Wealth Management director David Lane says investors will be counting on the company to do better.
Medibank’s 4.4 per cent profit margin is well below that of rivals Bupa and nib, which means it has room to improve.
Former government owned companies also typically do a better job of keeping costs down after privatisation.
“It’s not cheap and investors are hoping that over the next two to three years there will be an uplift in earnings compared to what was in the prospectus,” Mr Lane said.
Even so, Mr Lane said Medibank shares may drop in coming months.
But the insurer was likely to be a decent longer term investment, he added.
Medibank was the most traded stock on the ASX on Tuesday, with more than 585 million shares changing hands in just four hours.
MEDIBANK FLOAT BY THE NUMBERS
* 2nd biggest public listing in Australian history
* 3rd largest IPO in the world in 2014
* 2.75b shares issued
* 60 pct of shares went to retail investors
* 440,000 investors took part in the float
MEDIBANK – NEW KID ON THE ASX BLOCK
* Founded in 1976
* Market cap of $6b
* 3.8m policy holders
* Market share of 29 pct