Medibank's risky investment portfolio

Intelligent Investor

Independent Financial Research

Medibank's risky investment portfolio. Medibank's investment portfolio is roughly $1.5bn - more than three times larger than NIB's. What's more, in 2013 it generated $130m in additional income for the company and accounted for some 40% of Medibank's pre-tax profit, compared to roughly 30% for NIB. That may sound like a good thing, but it actually makes Medibank's earnings far more volatile. Medibank's investment portfolio has twice the exposure to equities as NIB so it has benefited from a rising share market. However, if stocks fall materially, Medibank's earnings will be hit hard - in 2009, the company's investment portfolio made a loss of $54m. This isn't a problem when the Government is your only shareholder, but, when Medibank lists later this year, private shareholders may not have the stomach for wild profit swings. Medibank might need to invest its float more conservatively in bonds or other fixed-interest securities. This would stabilise its earnings but, with interest rates so low, is sure to act as an anchor on profit growth. (VIEW LINK)


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Independent Financial Research

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