Medibank (ASX:MPL) was privatised on the 25th of November last year with the float price to retail investors set at $2 per share

Medibank (ASX:MPL) was privatised on the 25th of November last year with the float price to retail investors set at $2 per share. Currently trading $2.34, shareholders are sitting on a very tidy 17% increase in just two months. The Australian health sector is a major part of the economy, with total expenditure in excess of $147 billion and a 10 year compound annual growth rate of approximately 8% up to 2013. Medibank derives 90% of their revenue from the Australian Private Health Insurance (PHI)sector and had close to 30% of the policyholder market as at June 2014. To the upside Medibank has very strong fundamentals, stable margins, defensive high single-digit earnings growth, low cost of capital, a greater than 20% ROE, leading brand/market share and a strong balance sheet with no debt. To the downside, the company faces government regulatory risk with regards to capital requirements and competition has intensified as new entrants and low-cost providers aggressively grow market share. We believe Medibank are currently fully priced trading on a price to earnings ratio of 24 times.