Medibank investors hope for healthy returns

SMALL investors have been given a rails run in the Medibank Private float.

First-time stockmarket investor Gracie Tanner, from Unley in Adelaide, says she is confident her invest­ment in Medibank will perform well. Picture: James Elsby

FOR almost 40 years, Medibank Private’s sole shareholder was the commonwealth government. At midday tomorrow, the private health insurer’s 440,000 new owners will look to the stockmarket as the biggest privatisation share sale since 2006 hits the trading boards.

Small investors have been given a rails run in the Medibank float, with the federal government expanding the allocation of scarce stock to mums and dads and the final price set at $2 a share — a 7 per cent discount on the $2.15 price that applies to the big domestic and overseas pension funds.

Medibank, the nation’s biggest health insurer, will list on the ­Australian Securities Exchange tomorrow after the ­government pockets a higher-than-expected $5.68 billion for ­productivity­enhancing infrastructure through its asset-­recycling program.

While retail investors get to load up on Medibank stock, it’s considered unlikely they will bene­fit from huge “stag” profits, where shares spike to much higher levels than the listing price.

Sources close to the privatisation said yesterday that Medibank’s 2.7 billion shares were likely to open at about $2.20.

“The days are long gone when governments were happy to see large stag profits on day one of an initial public offering,” one insider said.

First-time investor Gracie Tanner, from Unley in Adelaide, has not bought her Medibank shares for a quick profit.

“I think with Australia’s ageing population the demand for medical insurance will only become greater over time,” she said.

“I don’t have any other shares at the moment but the Australian government had a vested interest in ensuring the sales goes well, which is good to know.”

Ms Tanner, 25, who is a research assistant at the School of Health Sciences at Flinders University and recently completed an honours degree in psychology at the University of Adelaide, said she had examined the proposition and was confident her invest­ment would perform well.

She applied for $10,000 worth of shares through the retail broker offer and $13,500 worth through the ordinary public offer.

The government’s share alloc­ation policy, released yesterday, means Ms Tanner will end up with Medibank Private shares worth at least $7000.

“This was a rare opportunity to become involved in a great Australian company,” she said, noting that her father was a longstanding investor in the Australian sharemarket and had encouraged her to apply. With about 440,000 investors being allocated shares, Medibank will have a similar number of shareholders to Woolworths, although­ it will lag behind more widely held, and significantly larger, companies. These include BHP Billiton, with almost 600,000 shareholders; the Commonwealth Bank, with almost 800,000; and Telstra, with 1.4 million. Finance Minister Mathias Cormann said yesterday that 60 per cent of the share offer went to ­retail investors, with the government exercising its right to claw back 20 per cent that was previously allocated to broking firms. Of the 40 per cent of the available stock that went to institutions, 22.9 per cent went to local funds and 17.1 per cent went offshore.

Senator Cormann said no retail investor had been allocated less than the minimum application size of $2000 worth of shares.

He said the outcome of the privatisation — the biggest since the final, $15.5bn Telstra share sale in 2006 — had been “excellent”.

“The level of interest in Medibank Private, both here in Australia and from global investors, positions the company well for its debut on the ASX,” he said.

As to Medibank’s likely fortunes tomorrow, Senator Cormann declined to comment. “Let’s see what happens,” he said.

As a business transitioning to private ownership, Medibank is seen to have opportunities to cut costs so that it meets the efficiency benchmarks of rivals such as Bupa and NIB.

Despite its market-leading position, the insurer could also increase its 29.5 per cent share of the health insurance market.

But not all followers of the company have subscribed to the hype surrounding the float.

CLSA analyst Jan van der Schalk noted in a recent report that Medibank management, led by chief executive George Savvid­es, had been in place for 12 years.

“We are told this is a cost-out story,” Mr van der Schalk said.

“Maybe, but we wonder why this mob should suddenly be good at running an efficient shop. We see only issues with this strategy.”