Immigration boost

2 May 2023

Sector: Financials

TRADING UPDATE

Need To Know

FY23 guidance largely unchanged
Immigration tailwind boosting non-resident policyholder growth and gross
Running behind target group policyholder growth of 0.5-0.75%, currently just 0.02% FYTD, implying a strong catchup in 4Q23

The trading update didn’t provide much material new information, with FY23 guidance overall largely unchanged. Strong immigration numbers continue to be a tailwind for MPL, having increased its policy units by 62.0k FYTD to 258.5k (as at 31 March 2023). This has led to an upgrade on its non-resident gross profit, guiding to approximately double FY22 figures of $37.5m (implying ~$75m FY23 gross profit), whereas previously the guidance was just for 2H to be higher than 1H (~$31m), implying a new guidance for 2H of ~$44m. Consensus largely has a total underlying group FY23 gross profit uplift of ~$65m, with the implied ~$37.5m growth from non-residents being almost 60% of the growth, despite being just ~3% of total premiums.

Resident policyholder growth guidance for FY23 has been reiterated at 0.5-0.75% growth, however FYTD growth for the nine months is just 0.02%. MPL commented that it expects “a strong 4Q” with “positive momentum” leading into FY24. We expect the growth to be at risk, although increasing immigration should provide some offset.

Cybercrime impacts seem modest, although there are still risks surrounding class actions and further regulatory reviews. MPL expect the non-recurring costs to be at the top end of the $40-45m range. It also does not anticipate a material increase to recurring IT costs.

Cash claims have seen a modest uplift since 31 December, however remain significantly below its underlying claims expectations.

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.

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Medibank Private is one of Australia’s largest private health insurers covering ~3.7 million people in 2022.

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