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

What happened to the Medibank Private share price?

After hitting a high of $3.32 in May this year, shares in Medibank Private [ASX:MPL] have fallen close to 30% over the last four months. That’s a big change in fortunes for a stock that was a market darling in the first half of this year.

Medibank Private is now trading only around 20 cents above the $2.15 entry price the institutions paid in its IPO two years ago. While retail investors still have a bit more cover — their IPO entry price was $2.00 — they’ll be watching the stock closely for any further falls.

Why has Medibank fallen so much?

After trading sideways for its first year-and-a-half, a surprise upgrade in January this year really lit a fuse under the stock. The share price rallied nearly 50% in just over three months as new shareholders bought in.

Half-year results subsequently showed a 58% increase in profits, with the announcement of a new highly-rated CEO to commence in July adding more momentum to the stock.

However, it was Medibank’s full-year results in August that pulled the rug from under the stock. A 46% increase in profits after tax and an increase in the dividend wasn’t enough to prevent investors from heading for the exit.

What now for Medibank?

One major issue the results highlighted was that Medibank is struggling to keep its clients. In fact, it lost close to 100,000 in the last financial year. While Medibank is still the biggest private health insurer in the market, with 3.8 million members, rivals like Bupa and NIB Holdings [ASX:NIB] are taking market share away.

And the other big problem is affordability. With health insurance premiums rising on average over 5% a year — and wages growth at barely 2% — private health insurance is creeping out of the grasp of many.

New CEO Craig Drummond has only been in the job since July, but he hasn’t been idle. Medibank is on the hunt for a new CFO, and a new position of Chief of Customer Service has been created to address Medibank’s poor customer service.

No doubt the CEO will find ways to strip costs out of a business that was in government hands only two years ago. But what the market will be looking to see if he can start to grow the business.

Matt Hibbard,
Money Morning

Money Morning Australia