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Cost reductions ahead for Medibank Private

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Key statistics: ASX:MPL

27/10/15 closing share price: $2.420

52 week high: $2.590

Medibank Private

Most recent dividend: 5.3c

Annual dividend yield: 2.17%

Medibank Private's (MPL) core business is the underwriting and distribution of private health insurance policies through two brands, Medibank and ahm.

They also provide a range of integrated healthcare services to their private health insurance policyholders, government, corporate and other retail customers. Medibank's headquarters are in Melbourne, Victoria, and they have operations throughout Australia and a presence in New Zealand.

Medibank Private is expected to realise significant cost reductions over the next three to five years.

The company's investment in its new IT platform combined with its investment in data analytics are expected to result in improved claims and expense ratios, lifting its overall margins towards those of market leader Bupa.

The use of technology should also deliver scale advantages for the two majors through the ability to improve the care outcome of members while eliminating waste from the system by using data analysis to identify best in class healthcare treatments.

Strong cash flow dynamics and a conservatively geared balance sheet also position Medibank Private to opportunistically build out its presence in the value chain, or consolidate the private health insurance market.

medibank private

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Roger Montgomery is founder, chairman and chief investment officer of Montgomery Investment Management. Following a successful career as an analyst and public company chairman, Roger published the first edition of his stock market guide, Value.able, in 2010, becoming an Australian best seller in just 16 weeks. He holds a Bachelor of Commerce and is a senior fellow of the Financial Institute of Australasia.
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