Margins still healthy

RESULTS

Need To Know

• FY23 results in-line with market expectations. Net margins of 8.9% still well above 6-7% long term target
• Australian residential policyholder growth still tracking 'more than double' system growth with 4.7% in FY23 (expecting 3-4% in FY24)
• No specific FY24 guidance provided, but outlook is 'positive'

FY23 results overview vs consensus

Premium revenue $2.9bn up 10.9%, vs $2.9bn

Underlying operating profit $263m up 11.1% vs $264m

NPAT $191.1m up 42.8% vs $195m

DPS 15.0cps final dividend declared

Investment Implications

Nib's Australian residential health insurance (ARHI) business achieved its highest sales and strongest net policyholder growth in over 8 years of 4.7%, more than double the anticipated industry rate, continuing its long track record of above system growth. Premiums increased 2.72%, the second lowest in 20 years, with deferrals for substantial periods due to Covid-19, and easing pressure on affordability.

International students and travel also experienced strong recovery over the year. Investment returns rebounded in FY23 to $54.7m, from a loss of -$30m in FY22. The $158.1m raised in November 2022 has been put to good use in pursuing opportunities in the NDIS. FY23 saw underlying operating profit of $3.1bn, and in early FY24, nib entered into agreements to purchase more plan management businesses, and is on track to reach 50,000 participant numbers by FY25.

No specific numerical guidance was provided, but the outlook was deemed 'positive'. The increase in overall health insurance coverage continues as a trend, and nib expects 3-4% growth in ARHI. Claims expense is always uncertain, but nib expects 4-6%, but noted potential efficiency gains. International and travel insurance continue to benefit from positive tailwinds, including record student visas being lodged in the last quarter. Nib also continue to take market share, growing to 9.6%, up from 9.4% in 2022. Net margins of 8.9% in FY23 were strong, but above the 6-7% expected medium term target, where nib continues to gradually drift towards.

Investment View

Nib offers valuable exposure to the PHI industry as well as the growing NDIS. It has grown significantly over time, taking market share both organically and through acquisitions. Nib has consistently grown its premiums and policyholders above the industry, and we expect this trend to continue. Whilst we expect net margins to gradually return to the long-term average of 6-7%, the current high margins are being converted into significant balance sheet strength. Investment income is benefitting from higher interest rates, providing upside risk to earnings numbers. We retain our Buy recommendation.