agree with your assessment buddy. Here is the Intelligent Investor article from just few moments ago
Why I registered for the Medibank IPO By Gaurav Sodhi Tuesday, September 30, 2014 0 Shares No tags Blog_Medibank When Medibank Private lists on the ASX at the end of the year, it will unleash not only a plethora of poor health puns, it will also make public the largest private health insurer in the country. Registrations to receive the prospectus are now open and I’ve just singed up. I’m not usually keen on IPOs – in fact, I’ve never bought into one – but there are a few reasons this one could be better than average. For a start, there’s a good chance the issue could be mispriced. For most analysts and brokers, valuing Medibank will probably involve taking last year’s earnings and applying a multiple. They may look to listed peer NIB and see that it trades on a PER of almost 18. Most likely, they will give Medibank a similar multiple and call it fair value. Yet NIB’s valuation is based on the market’s estimate of sustainable earnings; Medibank’s profit’s last year are probably below what the business can truly earn. Unleashed from government control, Medibank can undoubtedly find cost savings and margins should rise. Insurance margins at NIB, for example, are 5% compared with 3.6% reported from Medibank; costs per policy and administration expenses are higher. The inefficiency of Medibank today is a source of profit growth for tomorrow. While we don’t know the price of the float yet we know that the government, rather than private equity or genuine insiders, are selling. That changes incentives. I don’t mean to imply that the government is necessarily unsophisticated but when governments sell assets, it isn’t just investors who buy them: it’s voters. And government can’t resist a chance to placate voters. It’s a tendency that should please investors and reason enough to be interested.
