Medibank IPO

Medibank Privatisation – Wait a minute…

The IPO has been assigned to be managed by Deutsche Bank, Macquarie and Goldman.
The Australian government is aiming at raising around $5.5b at $1.55 – $2 for the price range and this seems achievable. The government is offering a $2 cap on the price on the first $250000 invested by retail investors. The final price is not to be revealed before the middle of November with a float target date on the 25th of November.

So here are are the facts:

At the current expected range the P/E is 17-18 and hence not cheap as most banks aim for around 13-14. But if reputation and marketshare is anything to go after please be aware that the only thing that will maintain a solid growth is investor confidence.

Our prediction is that with the lack of government interference and prejudice there is likely a equalisation in the short term ahead with Medibank having to play on a new level playing field. This could be good for consumers as the price point becomes more competitive but certainly unattractive for investors.

We are expecting percentage point exit of government staff from insurer at federal, state and local level and hence a drop in revenue. Medibank CEO George Savvides aims at reducing costs paid out to healthcare providers in order to increase earnings. Medibank currently spends $.87 cents on claims for every $1 earned in  premiums.

There are positive numbers as well like the 6%+ rise in premium revenue in 2015 but we will see a sharp equal increase in claims. Also ETF’s are likely to buy into this stock as the valuation will place it in the top 100 market cap sized stocks in Australia.

Medibank is a sure and safe long play but our expectations is that the managing banks will be looking at dumping their fee stock and thereby driving down this stock. We recommend investing once Deutsche, Macquarie and Goldman dump their allocations.

Stay away from the IPO as this is a high risk play for short term investments but if you must get into this stock wait it out. Whilst we hope the government has learned a few things form the past we must all responsibly remember what happened during the Telstra privatisation.

Medibank Private Prospectus

 

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