Market Share is one of the biggest factors affecting Medibank's valuation at the moment.
In 2011, its market share is about 31%. vs BUPA 27% vs Nib 8%
In 2016, its share declines to 27.6% vs BUPA 27% vs Nib 9%
While the small players grow from 16% to 19%.
Without doubt, Medibank market share declines on average, by 0.68% per year.
However, Australia population is still growing at 1.4% per year, partially offset by decline in participation rate of 0.5% from 2015 to 2016, due to rising premium rate in comparison to CPI.
In my opinion, health insurance industry still grows at between 0.5 to 0.9% per year.
The future is about cost-leadership through flexibility in offering, with trend pointing to increasing exclusive and excess/co-op policy demand.(more customized, only pay for what you need or pay as you receive treatment)
In terms of cost reduction, the current gross margin at 16.6% is probably about as high as it gets, as BUPA only has 15-16 % and NIB 13-14%.
Great thing done by MPL: significant cost reduction, recognition of premium rise vs CPI (affordability issue), defensive investment
Things to watch for: small players eat away the market share, less room for cost improvement, customers complaints/service.
In my opinion, Medibank is still a good investment, because the industry is growing at 0.5 to 0.9% per year, so losing market share is not an imminent problem (its profit will still perform reasonably well) but rather a long-term one.
The message from the directors seems to show that Medibank does prioritize customer service as No.1.
Let's see how well they can serve the customers.
MPL Price at posting:
$2.55 Sentiment: Buy Disclosure: Held
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