Health insurer Nib Holdings produced an impressive profit, but analysts were more interested in the softer guidance for the next financial year.
Nib is an active and fast-growing private health insurer in Australia and New Zealand. Both their policyholder numbers and insurance premiums are growing, complemented by attractive returns on equity.
Morningstar analyst David Ellis said Nib increased its reported profit by 11% to $A133.5million ($NZ147.5million) on the back of a strong performance from the key Australian operations and the nine-month contribution from GU Health, acquired in September 2017.
Despite the strong 2018 financial performance and the year-end roll forward of the valuation model, the Morningstar estimate was unchanged at $A6.20 a share, due to a modestly softer short-term outlook than previously expected, he said.
Morningstar liked Nib's longer target to boost earnings from adjacent businesses towards 50% of total underlying profits. Adjacent businesses - World Nomads, New Zealand, and international inbound insurance - were expected to grow at a faster rate than Australian resident health insurance (arhi) due to organic growth and acquisition, Mr Ellis said.
Solid returns were expected from the $A155 million GU Health acquisition and longer term, there was good upside expected from the yet-to-launch proposed China joint venture.
Industry consolidation was expected to gain pace and the firm was well placed to leverage its position as the fourth-largest private Australian private health insurer.
''We forecast policyholder numbers increase an average of 3.7% per year to the end of 2023 as the firm leverages its expanding distribution capability and niche targeting to grow policyholder numbers.''
Despite solid top line policyholder growth, risks to Morningstar's positive view included unfavourable political outcomes - particularly around annual government-approved premium increases.
Other risks included weak industry growth rates due to unaffordability, margin pressure and increased investment need across the business, Mr Ellis said.
Acquisition and integration risks remained for the acquisitive private health insurer.
Nib needed to ensure the current level of investment in the business improved sales and productivity, boosted customer service levels and reduced policyholder churn rates.
Affordability remained a key issue for the private health insurance sector.
Recent statistics pointed to the continued decline in membership at June 30, he said.
