Medibank results: Top line growth disappoints

Medibank's FY16 NPAT (A$418m) was 3% above consensus, driven by a strong Health Insurance (HI) operating profit of A$510m, ~8% above guidance (A$470m). FY16 HI top line growth was the result disappointment at 4% (guidance of 4.5-5%). FY17 outlook commentary was broad, without quantitative detail, pointing mainly to a continued tough top line environment and expected further normalising of claims utilisation rates. HI's cost performance has been highly impressive in our view. FY16 claims costs rose just 1%, while absolute HI management expenses were broadly flat. Overall MPL has delivered strong results since listing. While further cost out is a near-term theme, we feel that risks to HI profit margins are now tilting to the downside. We believe that if HI revenue growth isn’t restored, MPL could return to a mid-single digit EPS growth stock quickly when cost out ends. Keep reading for more detail, including the analyst rating: (VIEW LINK)