Growth momentum is back

RESULTS

Need To Know

• Earnings and dividend ahead of expectations, with resident policyholders returning to growth, in-line with guidance
• Expecting moderation in industry resident policyholder growth, guiding to ~1.5-2.0% growth in FY24 and claims growth of ~2.6%
• With claims growth still remaining low and evidence of policyholder growth post the Cyber attack we retain our Buy

FY23 results overview v consensus :

Revenue $7,355m vs $7,204m

Underlying NPAT $499m vs $480m

EPS 18.1cps vs 17.6cps

DPS 8.3cps vs 8.0cps 

Investment Implications

MPL’s underlying NPAT was ~4% ahead of consensus on strong investment income, partly offset by higher overheads and tax. Resident policyholder growth came in-line with guidance, growing 10.9k (+0.6%), with the majority of this attributable to ahm (MPL members down -0.1% 2H23 vs 1H23, ahm up +2.1%). Cybercrime related costs came in a touch above guidance at $46.4m (vs $40-45m). Further cyber related costs in FY24 are expected to be $30-35m as MPL continues improving its IT security and legal costs, however this excludes any potential findings or outcomes from regulatory investigations.

Resident policyholder growth is expected to continue to grow again in FY24 by ~1.5-2.0% as the industry growth moderates relative to FY23. We expect ahm to continue delivering the majority of growth. Forecast FY24 underlying claims growth at 2.6% is similar to underlying growth in FY23 of 2.4%, with healthcare cost inflation having a modest impact on claims. The major headwind for FY24 is higher public and private hospital claims inflation, partly offset by lower rehab claims. Management is also targeting $20m of productivity savings across FY24 and FY25.

Non-resident policyholder growth of 78.4k (+39.9%) was strong, and gross margin recovered to pre-Covid levels. Continued growth in visitor and worker market segments and market share opportunities provide additional room for growth.

The investment portfolio returns came in above expectations, although the underlying spread to the RBA cash rate of 91bps is still below the target of 150-200bps with property fund manager performances below benchmark. The balance sheet remains strong, with the capital ratio at 14.6%, allowing for the additional temporary $250m APRA supervisory adjustment. The final dividend also came in above expectations, with the payout ratio at 80.5%.

Investment View

Immigration is providing key non-resident policyholder growth for MPL, and it should continue to benefit from further immigration, evidenced by strong non-resident gross profit growth. The resident policyholder growth should see renewed momentum into FY24, and we expect the business to remain resilient post the cyberattack. We retain our Buy recommendation.