Medibank float OK, if price is right

INVESTORS have been warned not to over pay for shares in Medibank Private.

INVESTORS have been warned not to pay too much for shares in Medibank Private after the government revealed it could raise up to $5.5 billion in the biggest float since the privatisation of coal hauler Aurizon in 2010.

Formally launching the largest public-asset sale since Telstra, the government yesterday filed a prospectus for the initial public ­offering of Medibank, pitching shares at between $1.55 and $2 to raise $4.27bn-$5.51bn to invest in infrastructure.

The government’s investment- bank advisers said there was strong interest in the float, but the prospectus revealed that Medibank’s Sale Act prohibited anyone owning more than 15 per cent for five years after the commonwealth sells all its shares.

The price range is equivalent to 16.5-21.3 times the financial-year 2015’s forecast net profit after tax of $258.2 million. At the top end, this is above the only listed comparable stock, NIB Holdings, which trades at about 18 times earnings.

INTERACTIVE: Medibank Private share offer

Medibank, the biggest private-health insurer, with 3.8 million customers, is to debut on the stock exchange on November 25 as a top-100 company with a dividend yield of 4.2-5.4 per cent and no debt. Although the final price would be set by the level of demand from institutional investors, the government capped the price retail investors would pay at $2.

“It’s a bit rich, I think, if it is priced at the top end of over 20 times earnings,” said Morningstar analyst David Ellis.

“If it’s going to price around the bottom of the range at 16.5 times, it looks quite good.

“NIB is trading around 17-18 times and you have to ask why would you be paying more for a government-owned business compared to NIB, which has been finetuned and operating ­efficiently since demutualisation a number of years ago.”

He said Medibank’s scale and market position, and its ability to increase productivity and reduce costs as a private company, would appeal to investors. “It’s a good long-term, steady, low-volatility stock in a heavily regulated industry that will churn out a relatively attractive, fully franked dividend.”

Finance Minister Mathias Cormann said listing Medibank would give it access to capital markets to pursue growth opportunities. He assured investors the government was not considering detrimental regulatory changes. “The share offer ... will remove the government’s inherent conflict in being both the owner of the private-health insurance industry’s largest market participant as well as the industry’s regulator, he said.

The retail offer runs from October 28 to November 14.