What’s Going on With Medibank Private’s Share Price?

What happened to the Medibank Private share price?

Shares of Medibank Private [ASX:MPL] have jumped close to 40% so far this year. Not a bad return in a little under three months.

Particularly happy will be those who got in on the float in November 2014. Such was the demand for shares, the government owned health insurer was able to achieve the top band of the $1.55–2.00 price range anticipated for the float. Retail investors paid $2.00, while the institutions got in on the action at $2.15.

Why have MPL shares risen so much?

There are several reasons for the big run up in the Medibank share price.

First, an earnings upgrade in January this year saw MPL shares trading up to 20% higher the following day. The profit upgrade was a precursor to half-year results in February that saw profits jump by 58%.

Adding further momentum to the share price is the recent appointment of highly rated Craig Drummond. The ex-CFO of NAB, Drummond will take over in July after missing out on the top job to Andrew Thorburn. He announced his intention to tackle the presently unsustainable heathcare costs which increase roughly 5% a year above inflation.

And third, the Federal government’s approval of a 5.64% increase in premiums, ticked off earlier in March, and kicking off on 1 April, also helps explain why the share price surged.

What now for Medibank Private?

After such a big run up in the MPL share price, the next question will be if the price has run too far. With a current yield of 3.5%, and a P/E ratio over 22, it’s a company that the market is pricing for growth. But can the run continue?

There’s no doubt the new CEO is ready to hit the ground running. With an organisation that was in government hands only 18 months ago, there will still be a lot of opportunity to wring out a range of further efficiencies.

While it might be tempting to chase the share price up, long term investors might better decide to wait for a pullback before looking to get on board.

Matt Hibbard,
Money Morning

Money Morning Australia