Life after death

1H23 RESULT

Need To Know

• Small NPAT beat, $233m vs $225m expected
• Expects FY23 resident policyholder growth between 0.5-0.75% and strong cost control with MER for FY23 ‘not above’ FY22
• 6.3cps dividend declared, up 3.3%

Despite the circumstances, MPL is showing signs of life, delivering net resident policy growth over the 6 months of 1.7k (+0.1%), and a strong non-resident unit growth of 33.4k (+17.0%). Group operating profit +7.4% vs pcp. 

Year to date, net resident policy holder growth is down -0.9k, not as bad as the market had feared (-1.1k in Jan, +0.2k in Feb), indicating some stabilisation and initial positive momentum. 1H23 dividend 6.3cps, 77% payout ratio, in line with its 75-85% target range. 

Continued momentum in the Health Insurance business saw operating profit rise 8.7% reflecting continued policyholder growth, and margin recovery in the non-resident business following the reopening of borders. Customer retention was impacted by the diversion of resources to support higher cybercrime call volumes, however the trends have stabilised since December. 

Medibank Health saw just 0.9% operating profit growth, which was resilient given the impact of subdued private hospital admissions and higher labour costs. Telehealth was impacted by the transition out of 2 contracts in 2H22. Travel insurance continues to recover. 

Investment income increased 80.9% to $55.9m with the benefit of higher interest rates and narrowing credit spreads. In 2H, MPL expect an additional $10m interest income in the defensive portfolio. 

Capital remains strong with $1.0b health related capital and $198m unallocated, modestly above the prior period and representing 13.0% of premium revenue, at the top end of the 10-13% target range.

Outlook is for continued growth in resident policyholders of approximately 0.5%-0.75%. Underlying claims per policy unit growth of 2.3%. Management expenses are expected to be ~$560m, and underlying management expense ratio (MER) to be ‘not above FY22’. Non-recurring cybercrime costs are expected to be $40-45m, driven by IT investment.

Investment View

Investors can breathe easier after this result, demonstrating the resilience of the underlying business and the strong response to support and retain customers. MPL is well positioned to continue acquiring customers and grow its business, underpinned by a focus on its international business and a returning travel insurance tailwind. Still trading below its longer-term PER multiple (~17x vs 19.5x), we retain our Buy recommendation.

Figure 1: Solid underlying result