Established over 50 years ago, NHF is Australia’s only ASX-listed health insurer.
The company offers a wide range of policies suitable for customers across the board, but its focus on the youth market has helped it to achieve the fastest growth among the major players in the sector.
NHF is a company enjoying healthy growth. Since FY08, net premium revenue has risen at a compound annual rate of 11.2%. Return on equity was also a healthy 21.3% in FY13.
One concerning aspect of the FY13 results was a fall in net profit margin from 5.9% to 5.1%. The group blamed higher claims costs without a commensurate increase in premium rates.
The group was relatively sanguine about FY14, downplaying earning growth expectations amid higher marketing and branding costs.
Nonetheless, the company negotiated a 6.5% increase in premium rates, effective April 1st 2013, which is expected to support profit margins in FY14.
Medibank shapes longer-term outlook
Following the Federal election, Prime Minister Tony Abbot’s government has begun the process of privatising Medibank as a way to streamline the government and cut costs.
The government is awaiting results from a scoping study, expected in February 2014, before deciding when to float the insurer.
Medibank has a ~30% share of the health insurance market, so a privatisation would shake things up for the industry. Bupa is the next biggest player with a 27% share, followed by HCF with 11% and then NHF with around 8%.
A privatised Medibank means the potential for consolidation as the smaller companies look to stay competitive in a growth industry. NHF would be ripe for the picking in our view, given its strong fundamentals and attractiveness as a target for Medibank or Bupa.