NIB Holdings Limited (NHF)

By Jason Fittler

NIB Holdings Limited (NHF) is an Australian company engaged in insurance services.

NHF operates in four divisions:

1. Private health insurance

2. Life insurance

3. Travel insurance

4. Related health care activities

NHF's strategy is to provide innovative, low cost health insurance products.

NHF is Australia’s fifth largest health fund, providing insurance to more than a million customers.

This insurer ticks all the right boxes for us. It has a strong track record of disciplined underwriting in addition to conservativeness in managing its investment portfolio.

The company has not made an underwriting loss - where it has had to pay out more in claims and expenses than it has received through premiums – since 2005.

This year represents the 12th consecutive year that the company has grown customers in excess of the industry rate.

We feel this trend will continue given their recent alliance with Apia Insurance, a specialist in the over 50’s age group.

In addition to an ageing population, the recent National Commission of Audit Report contained a number of recommendations, which would see the private health insurers become increasingly involved in the Australian health system.

On the capital management front, we believe the stock is cum a special dividend or a share buyback.

Bears counter that earnings will face a headwind from increasing policy lapses and churn.

While these risks should not be downplayed, we believe the market has already discounted them.

We believe the current share price offers an excellent entry point into this company.

Guidance for fiscal 2014 operating profit will be in the lower range of the previous guidance of AUD 73 to AUD 80 million.

We've reduced our operating profit forecast to AUD 74 million, from AUD 81 million previously.

Fiscal 2014 earnings per share falls to AUD 16.6 cents per share from AUD 17.8.

We retain our AUD 3.50 fair value estimate and at current levels the stock is attractively priced.

For more information about NIB Holdings Limited (NHF) please contact us on 07 4771 4577.