In a report analysing the details of the Medibank IPO, Morningstar analyst David Ellis said the firm recommends investors apply for shares as this represents an opportunity to invest in the health insurer “at a fair price or better”.
“The outlook for Medibank is promising and, in our opinion, suits conservative investors seeking long-term defensive earnings growth,” Mr Ellis said.
“Operating in a heavily regulated industry, Australian health insurers typically produce stable and defensive earnings and, in our opinion, the narrow moat-rated Medibank is well placed to produce solid long-term earnings growth.
“Long-term growth prospects are supported by government reliance on private health insurers to partially fund escalating healthcare costs,” Mr Ellis said.
He also said that long-term managing director George Savvides is “well placed” to deliver increased returns for investors through reducing costs and increasing growth earnings.
“We expect management action to boost Medibank's insurance margins to above five per cent in coming years, from three years of under-performance averaging four per cent,” Mr Ellis said.
“The earnings improvement strategy includes premium increases, product and distribution enhancements, lower costs, better claims management and new IT systems,” he said.
Medibank is expected to begin trading on the ASX on 25 November 2014 on a conditional and deferred settlement basis, and then on a normal basis from 5 December 2014.
