Medibank Private (MPL): This morning, Australia’s largest health insurer reported its full-year 2024 results, which showed MPL’s disciplined approach to volume growth, which was an excellent result overall from MPL. The HNW Portfolios currently hold a 3% weight in MPL.

Key Points:

  • Another Record Profit: Medibank recorded a net profit increase of +14% to $470 million, driven by a 4% increase in premiums, with a highlight of a +35% increase in non-resident (foreign students) premiums as students return following Covid-19 lockdowns.
  • Medibank Health: Increased profits by 37% following increased uptake in homecare and telehealth revenue driven by patients wanting to go home following surgeries as early as possible and still get the required consultations. Growth of this telehealth and in-home care was the highlight of the result and are the fruits of a strategy laid down several years ago. Popular with patients, great for shareholders as patients are cheaper to treat at home for routine surgeries, but a big negative for private hospitals such as Ramsay whose daily stay charge starts at $2.3k.
  • Benefits from Higher Interest Rates: Medibank’s investment income portfolio of $2.6 billion returned 5.77% over the trailing 12 months’ earning $182 million, representing a 32% increase on last year.
  • Record Dividends: MPL announced a full-year, fully-franked dividend of 16.6 cents per share, representing 14% growth on last year and an 80% payout of profits. (See Below)
  • Guidance: MPL management guided with their expectations to grow customers in line with the market (1.9%) in FY25, with expected claims per policy growth of 2.7% and Medibank Health profits to increase by 15%.
  • Why is the Stock Down? Medibank policyholder growth (1%) was lower than what was provided as guidance in the half-year results, which was policyholder growth of 1.2-1.5%, though management said on the call that they are not going to sacrifice profit margins for growth. Overall, it is an excellent result.

MPL finished down 2% to $3.83, but has been a solid citizen of the Portfolio, return 10% over the last year vs the XJO of 8%.

Portfolio Strategy: We own MPL in the Portfolio as MPL’s healthcare earnings are defensive, and it is a well-run business. Despite its high market share, MPL’s gross margins and management expense ratios are higher than others in the industry, reflecting its recent past operating as a government department. However, management has been slowly taking costs and improving margins. Over the medium term, MPLs moving to improve their digital health experience and having patients treated at home rather than in private hospitals will drive profit growth, expand margins, and be a good outcome for recovering patients.