UBS: Our pick for the Private Health Insurance move, it’s totally sick

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In the event you actually need to go for a Covid-related investment strategy that truly has something to do with getting crook, then possibly try what they’re as much as within the local Private Health Insurance industry.

That’s the recommendation of the analysts at UBS, and it’s not wealthy in ambiguity.
 

The Private Health Insurance story

Covid-19 has put the health insurers right within the crosshairs, with each head and tailwinds blowing across the sector.

The virtually alternating wave of elective surgery delays have delivered a healthy cut in the amount of insured medical procedures and that naturally means bottom line savings for the businesses providing medical insurance. And consequently several of the listed insurers selected to defer the annual premium increases for six months, or sought to to return money across the client base by offering discounts to members.

On the plus side, Covid-19 and a few of the other newcomers – just like the delicious sounding Monkeypox – are more likely to encourage more recent customers, particularly younger ones, to think about taking over or taking off their medical insurance.

With unemployment at record lows, anyone that lost their gig through the pandemic and thought medical insurance was a discretion to chop, may possibly start reconsidering.
 

The Private Health Insurance pick

UBS analysts have identified much improved consumer sentiment towards the PHI value proposition.

And their pick, Medibank Private (ASX:MPL) just about agrees.

Market Matters on MPL:

Last month the insurer says Aussie participation in private medical insurance is growing and stays “strong” – citing the recent step-change in Aussie attitudes

Private medical insurance is making loads more sense as public hospital wait times blow out and recent and varied disease outbreaks do their bit to maintain health fears front of mind.

But MPL says  private cover is now each more cost-effective and higher value.

These aspects should drive above-average policy-holder growth, in UBS’ view. Less downgrading of policies and lower acquisition costs are also most probably to maintain on into FY23 and support ASX-listed PHI stocks.

Moreover, UBS feel that the balance of regulatory risks is now skewed to the upside, after which there’s the go-digital trends which might improve each claims and customer experience – an area where UBS sees MPL with something of a primary mover advantage and where it’s each more advanced and experienced.

Medibank has now hit six straight quarters of industry policyholder growth.

“And we proceed to achieve market share in a highly competitive sector, well over 27%,” MPL said in a recent investor call. The corporate added 5 basis points in 1H22 and 14 basis points in CY21.

UBS says that the important thing ‘recent to industry’ and ‘younger Australian’ cohorts are actually each major contributors to policyholder growth, which Medibank has been telling investors are positive signs for industry sustainability.
 

The MPL Outlook

Finally, MPL says there’s also been a “significant” improvement in policyholder lapses and it expects industry participation growth to be higher than pre-pandemic levels over the medium term.

Growth shall be supported by population growth, continuing shifts in consumer attitudes towards health and “strong bipartisan support”, for the role of personal health.

James Gerrish at Market Matters said last yr MPL delivered a powerful 40% lift in profits for FY21, because the coronavirus delivered an expected strong tailwind to the business.

“People have significantly prioritised their health because the pandemic swept the world and who can blame them? The outlook for MPL is solid with the corporate fairly optimistic moving forward although the landscape is clearly a tough one to predict in these unprecedented times.”

Having said that, UBS adds that the penny-pinching Aussies approaching the present cost-of-living challenges mean the industry’s key selling point of affordability remains to be front and centre for securing growth.

Subsequently the health insurer was one in all the sector players that held back making a call on the standard April premium and has delayed the likely increase of three.1% until October.

Even so, resident policyholder growth sits between 3.1% to three.3% thus far in FY22.

Breaking it down – in the present volatile market –  UBS believes MPL brings various attractive attributes to the table:

  • Relatively stable revenues and predictable margins
  • Improving claims trends assisted by Government policy
  • Rising investment yields
  • Improving consumer perception of MPL’s brands

“MPL is amongst the pre-eminent players within the PHI industry, and while the stock doesn’t look low-cost at ~19x, UBS think these attributes are unique inside the financial sector and attractive at this point within the cycle (and the multiple is in step with average levels).”

Via Market Matters

Medibank Private: UBS upgrades rating to Buy

Consensus Suggestion: Buy

Consensus Price Goal: $3.58

UBS Suggestion: Buy

UBS Price Goal: $3.90 (from $3.35)

Crestone Wealth Suggestion: Outperform

Crestone Wealth Price Goal: $3.52

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