Going Private

Two weeks ago Australia’s largest private health insurer Medibank Private (MPL) provided a surprise upgrade, boosting its operating profit guidance for the 2016 financial year from “above $370 million” to “Operating profit of above $470 million”. This caused a spike in MPL’s share price, making it one of the top performing stocks in the miserable equity markets of 2016, returning +13% vs. the ASX200 fall of -9.3%. This upgrade on the back of improved margins was treated as a shock by some well-respected sell side analysts who then scrambled to upgrade their financial models of the company. In this week’s piece we are going to look at privatisations and the reasons why they tend to perform better under private ownership than in government hands.