Morgan Stanley downgrade, page-4

In recent weeks, I don't think a day has gone by during which I haven't read some or other report or media article or utterance by some or other political or economic commentator about the impending doom and terminal decline that awaits the private health industry in Australia.

In fact, just about every year or two during the many years I have been a shareholder in NHF, there has been some apparent existential threat to the business:

At one stage there were a series of reports suggesting a return fade for PHI sector because the major private hospitals had all the negotiating power, and were about to flex their muscle.   Then there was the chatter about the industry being in big trouble when the federal government removed the PHI rebates for those certain income brackets.  Then, specifically in relation to NIB:  when Medibank was privatised, it was said that the industry gorilla, going to non-government control and with access to equity capital markets, was going to sweep NIB and its competitors aside by taking all their market share.

These days the alarmist cries are about the viability of the private health insurers under the threat of the exodus of members who are content to fall back on the public health system.  Over the past few months the ABC Online has been running with an article every week about the troubles facing the private health insurers, with such sensational, attention-grabbing headlines as:

"Private health care facing 'death spiral' "
"Private health insurance leaves plenty of people unhappy"
"Private health insurance at a 'tipping point', with Australians dropping cover in droves"

And, this from The Guardian:

"Private health insurance makes Australia's system unfair and muddled, report says"

And today the AFR also has a piece dedicated to the glum outlook for the sector, entitled, "Medibank and NIB: All Good Things Must End".


While I think these media articles are a bit of an hysterical beat-up, and that private health insurance is a very necessary and critical part of the health cover landscape in Australia which will underwrite the financial viability of private health insurers, I have nonetheless sold my shares in NIB - after a very long and happy association - based on valuation grounds.

At a P/E multiple of close to 25x (which is several points higher than NIB ever got to before) , I'm not sure how that can possibly be a good investment, no matter how resilient and well-managed, a company I believe NIB to be.