Medibank Private

By Jason Fittler

The float everyone is talking about, but should you buy shares in this company.

Reading the Prospectus there are some key point you need to understand. (1) The structure of Medibank Private and (2) what it is that you are buying into.

The Prospectus was released on 20/10/2014 and the offer opens on the 28/10/2014 and closes for retail investors on the 14/11/2014.

The price will be determined through a book build, which means that the big end of town will negotiate the price with the seller (the Government). 

This will be determined after the retail offer closes but will be between $1.55 and $2.00.

Retail investors who want the stock will have to place their bid at the final price.

The first dividend is forecast to be $0.049 per share paid in September 2015 for the 7 months to the end of June 2015.

The company has forecast a 75% payout ratio, which provides an implied dividend yield of between 3.5% and 4.5% plus franking depending on the final issue price.

Medibank Private has the larger market share in the sector with 29.5%. Bupa is next with 26.8%.  The smaller players make up the balance.

Medibank underwriting margins are around 3.6% compared to the market leaders at 6.5% as such they have room to improve profits.

The main risk is government legislation changes, which may affect the profit of the sector once Medibank is sold.

As investors we need to keep in mind the size of this float. Being between $4.26 Billion and $5.5 Billion means it is a company all the major fund managers and index fund providers will be required to hold.

At a $1.55 issue price it will be trading below intrinsic value of $1.65, at $2 it will look fully valued.

But I expect that they will be enough support in the aftermarket for the company.

The real trick will be trying to get enough for your portfolio.

If you can get your hands on some grab it for the long-term.   

For more information about the Medibank Private float please contact us on 07 4771 4577.