Medibank is no bonanza – though I will be investing

Co-founder of the Switzer Report
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Key points

  • Medibank IPO is no bargain at 16.5 to 21.3 times earnings.
  • Its success will depend on its ability to cut costs and reduce the management expense ratio.
  • Risks include its reliance on investment income and government regulation.

 

The Government has been a little greedy on the Medibank Private IPO. Pitched on a multiple of earnings of between 21.3 times at the top of the price range of $2.00 per share, to 16.5 times at the bottom of the range of $1.55, it is no bargain compared to listed NIB Holdings, which is trading on a FY15 multiple of 18.6.

At $1.80, Medibank would be priced at a multiple of 19.1 times, and pay a normalised fully franked dividend yield of 3.9%. Interesting – but no bargain, so let’s hope the institutions succeed in talking the price down.

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