![]() A lower claims expense ratio (see note below) of 85.8 per cent for the year (we were forecasting 86.2 per cent) delivered A$20m higher underwriting profit and a margin of 5.5 per cent compared to our forecast of 5.2 per cent.Īnd while our upside valuation has increased only marginally to A$2.95, fewer positive variables are required to deliver that outcome. Our upside case has always been expected to come from an improved claims ratio and management’s progress in FY15 provided some reasons for confidence in the upside potential. Clearly this is not the case and as a result the Montgomery Intrinsic Value base case rises to A$2.51 and that is with our volume and revenue growth assumptions remaining below management’s guidance and below recent historical performance. We had previously and conservatively believed that that most of the available net cost reductions available from management expenses had already been realized. What that means is that the real reductions in the management expense ratio are meaningfully higher. ![]() Importantly, over the last few years, the amortization of customer acquisition costs has been rising and it will continue to do so. This is partly because management have offered guidance for the company’s MER (Management Expense Ratio) to fall from 8.6 per cent in FY15 to 8.3 per cent in FY16 and below 8 per cent in FY17. This is a lot better than we had forecast and the market had been of the opinion that most of the margin expansion from a falling MER had been realised.įollowing the full year results for Medibank Private (ASX:MPL), we believe the upside potential for the company has materially improved relative to our previous base case. The company also guided to a reduction in the MER to 8.3 per cent and below 8 per cent in 2017. Guidance suggests the health insurance operating profit will increase by more than 12 per cent in FY16 to over A$370m on revenue growth of 5.5 per cent. ![]() The big surprise from the recent reporting season was Medibank Private (ASX:MPL). ![]()
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