NIB Holdings: A solid result, albeit a bit below market expectations

About the author:

Richard Coles
Author name:
By Richard Coles
Job title:
Senior Analyst
Date posted:
24 August 2021, 8:00 AM
Sectors Covered:
Insurance, Diversified Financials

  • NHF’s FY21 NPAT (A$161m, +85% on pcp) was 5% below Bloomberg consensus (A$168m), with the final dividend of 14cps in-line with MorgansE.   
  • The key result themes, in our view, were largely as expected with a strong ARHI result offsetting some weakness in other divisions (IIHI and travel), although the 2H21 IIHI performance was weaker than expected. 
  • We  lift  our  NHF  FY22F/FY23F  EPS  by  4%-7%  reflecting an  increase  in ARHI forecasts on continuing CV-19 claims benefits, offset to a degree by a softer IIHI outlook.  Our PT rises to (login to view). 
  • NHF is a well-run business, however, we feel after a good recent share price run, and trading on 21x FY22F PE, the stock is fair value at these levels. HOLD.

Event

NHF’s FY21 NPAT (A$161m, +85% on pcp) was 5% below Bloomberg consensus, with the final dividend of 14cps in-line with MorgansE.  The key result themes, in our  view,  were  largely  as  expected  with a strong ARHI result offsetting some weakness in other divisions (IIHI and travel), although the 2H21 IIHI performance was weaker than expected. 

FY22 broad guidance points to expectations of market conditions similar to FY21.  With CV-19 having a big impact on multiple businesses overall, NHF earnings visibility is poor, in our view. Positively, however, the key ARHI business continues to see claims tailwinds.

The good

The ARHI result was very strong, highlighted by ~4% FY21 policyholder growth (versus the industry average of ~3%) and a robust 9.7% net margin (target range is 5%-6%) due to reduced claims/CV-19 provision releases.

The NZ business produced a solid result with 5% net policyholder growth (excluding underwriting agreements for international  students) and with the Underlying Operating Profit (A$24m) being up 3% on pcp.

Group cost control was excellent with total expenses (A$362m - underwriting and other expenses) down 8% on pcp.  Costs were lowered by 50% in the NIB Travel business in response to CV-19 revenue pressures.

FY21 investment income of ~A$52m was up >200% on pcp (A$17m) driven by strong returns on growth assets.

NHF’s balance sheet remains robust, with an improvement in all key balance sheet metrics seen over FY21, e.g. excess capital (A$65m vs A$57m in the pcp) and gearing (25% vs 28% in pcp). 

The not so good

IIHI saw a 2H21 underlying loss of -A$6m vs a ~+A$1m profit in 1H21.  The result was impacted by lower revenue (on higher book amortisation linked to CV-19) and increased claims on higher use of services by Students and business mix impacts. These pressures appear likely to continue in FY22. 

NIB Travel recorded an FY21 loss of -A$14m and is expected to see another loss in FY22 (albeit at a reduced level). 

The ARHI net promoter score declined to 25 from 35 in pcp, impacted by multiple member pricing notifications and some negative media sentiment during CV-19.

Changes to forecasts

We  lift  our  NHF  FY22F/FY23F  EPS  by  4%-7%  reflecting an  increase  in ARHI forecasts on continuing CV-19 claims benefits, offset to a degree by a softer IIHI outlook. Our PT rises to (login to view).

Investment view

NIB is a well-run company, however, it’s hard to know how long claims tailwinds (linked to CV-19) will support ARHI profits (with some of NHF’s other divisions struggling due to CV-19 headwinds).

With ARHI earnings arguably at cyclical highs and earnings visibility difficult, we see NHF’s ~21x FY22F PE multiple as fair value.

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