Medibank Private (MPL) – In good health

Medibank Private Limited provides private health insurance in Australia. The company operates in two segments, Health Insurance and Medibank Health. The company was founded in 1976 and is based in Docklands, Australia.

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FY26 revenue and earnings from Medibank (MPL) were in-line with expectations, as was the outlook. However, the lack of policyholder growth in the second-half (2H26) was slightly disappointing. Revenues increased 6% to $9.1 billion and underlying net profit after tax (NPAT) of $637 million was up 3% on FY25. MPL declared a fully franked final dividend of 10.9 cents per share (cps), taking the total FY26 dividend to 19.2 cps, an increase of 7% from FY25.

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The net number of policyholders grew by 1.1% in the year, with Medibank policyholders up 0.6% and ahm up 2.4%, while non-resident policy units fell 2.3%. In the second-half (2H26), policyholder growth slowed to 0.2%, with the slowdown blamed on cost-of-living pressures, increased switching by customers, and rising competition in the June quarter as some competitors adopted aggressive growth tactics. While policyholder growth was weak in the 2H26, it is not too dissimilar to growth rates in previous corresponding half-years and is typical of seasonal churn in the industry. Further, the policyholder growth delivered in FY26, should not trigger material downgrades, given consensus estimates ahead of the result had a similar level of policyholder growth, of 1.3% for FY27.

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Importantly, claims inflation appears relatively benign. Claims growth per policy unit was up 40 bp to 2.6%, at the low end of guidance for 2.6–2.9%. We are comfortable that the 5.1% premium increase achieved by MPL recently can cover claims inflation for FY27. Initial guidance for FY27 was within expectations – a) resident private health insurance gross margin to be flat on FY26; b) the Medibank health segment profit to grow 25%, including a full-year contribution from the Better Medical acquisition; and c) to grow market share in resident policyholder growth in a disciplined way (same as the guidance in FY26).

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We reduce our EPS by 1.5–2.0% per annum in FY27–29 driven by lower policyholder growth and higher cyber litigation costs, partially offset by higher investment income. Our target price is unchanged at $5.10 as the earnings reductions are offset by an increase to the valuation multiple, following a rise in the price-earnings multiple of the market. We keep the Buy recommendation viewing MPL as a relatively defensive option for the next 12 months, with circa 5-10% annual EPS growth on our forecasts.

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