Medibank Private earnings downgraded by analysts

A deteriorating outlook for Medibank Private has led analysts to downgrade the company’s earnings.

A deteriorating outlook for Medibank Private has led analysts to downgrade the company’s earnings.

A deteriorating outlook for Medibank Private has led analysts to downgrade the company’s earnings, with wanings it faces more challenges than it did 12 months ago.

Credit Suisse has also cut its target price on the major health insurer from $2.20 to $2.05, slightly above the $2 retail listing price of the company.

“We have analysed developments in the private health insurance industry over the past six months, which suggest a more challenging outlook,” Credit Suisse analyst Andrew Adams said.

“While we remain confident that Medibank will exceed its 2015 earnings prospectus forecasts, we believe that any 2016 earnings guidance statement at the upcoming result will be indicative of mid-single-digit growth.”

The investment bank has downgraded earnings at Medibank by 2 per cent for 2015, 6 per cent for 2106 and 7 per cent for 2017.

Medibank, the biggest asset sold by the Abbott government, was listed on the Australian market on November 25, 2014, in a much-hyped initial public offering. Institutions had paid $2.15 a share in the IPO while retail investors bought at $2.

The float was described by Finance Minister Mathias Cormann at the time of listing as a win-win for taxpayers and investors as the shares traded as high as $2.22 on the first day before closing at $2.14. They raced to a high of $2.56 on February 19, and reached that level again at the end of the month as the company reported half-year results in line with its forecasts. But it has been downhill since then and is now sitting around $2.07.

Mr Adams said issues facing Medibank included product downgrades, increasing competition and the company’s above-industry premium increase. He also said the absence of further industry profitability improvements and lower cash rates provided headwinds for earnings in 2016.

“In contrast, there appears to be a lack of tailwinds, although we note that policyholder growth troughed in March 2015,” he said.

Medibank recently terminated its contract with Calvary Health Care. Mr Adams said this could be part of negotiating tactics and was by no means a fait accompli, with a mediation session between Medibank and Calvary scheduled for later this month.

“If the end outcome is a contract termination, we note that the impact on Medibank, whether positive or negative, will be determined by the response of Medibank’s competitors and whether they use it as an opportunity to follow its lead and negotiate lower prices with the hospitals or use it as a marketing tool to grab more market share.”