Medibank Private Limited (MPL)
BUY

Customer resilience

 16 Nov 2022
Sector: Financials

AGM UPDATE

Need To Know

  • No impact on policy holders since the cyber incident
  • No change to revised FY23 outlook from 26 Oct
  • Cybercrime incident continues to overhang strong operating performance

AGM update leaves FY23 outlook unchanged (downgraded 26 Oct, following the cyber incident). 

As of mid-November, Medibank policyholder numbers are in-line with 30 September. This implies no net loss following the cyber incident was revealed on 13 October.

MPL talks to +14.5k net customer additions so far in FY23E. This implies an annualised run-rate of 2% growth (down from the 3.2% delivered in FY22). Before withdrawing guidance in late Oct, MPL was guiding to +2.7% policyholder growth.

Non-resident policyholder growth was 14% which implies little impact on customer numbers from the cyber incident.

Investment Implications

The MPL cyber incident continues to make headlines, today’s update suggests there has been minimal impact on customer numbers. The market has wiped almost A$2bn or 20% off the MPL market cap since it was revealed in mid-October which seems aggressive.

Whilst the situation is evolving, there is a risk the financial costs of the incident are materially higher than the $A25-35m initial guide from MPL (noting Singtel, parent of Optus has guided to $A140m impact). The silver lining is these costs should not be repeated once the issue is solved and should not be capitalised for valuation purposes.

Our Buy Rating on MPL is premised on improving industry conditions, a strong balance sheet and the cyber incident being a temporary distraction for the company.

At current prices, MPL is trading on 16x forward PER vs the long-term average of 21x. This suggests there is value in the current share price for a company which offers defensive growth over the medium term.

Figure 1: MPL PER currently at a ~20% discount to long-term average.

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Stock overview

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Company overview

Medibank Private is one of Australia’s largest private health insurers covering 3.7 million people in 2021.

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