Medibank: When growing profits and dividends by 8.5% just isn't exciting enough

Medibank (ASX: MPL) delivered a steady FY25 result with most key metrics growing at a mid-single digit pace, but investors weren't impressed with the orderly performance.

The stock opened 0.7% higher ($5.19) on Thursday but aggressive selling pushed the stock 6.2% lower ($4.83) by noon.

The selloff reflects the stock's solid run heading into results season, trading near record highs and up almost 40% year-to-date.

While the numbers were broadly in line with forecasts, forward looking trends may have spooked some investors. This included moderating industry growth expectations for FY26, an increase in customers downgrading their policies, and soft claims per policy growth.

The reaction follows a familiar pattern for high-performing stocks this reporting season. Commonwealth Bank, JB Hi-Fi and QBE Insurance all faced similar selling pressure despite delivering results that met expectations.

To unpack the key numbers and what the result means for Medibank's outlook, I spoke to IML's Daniel Moore.

Medibank's FY25 results

• Revenue up 5.2% to $8.60bn vs. $8.66bn est (0.7% miss)
• Underlying NPAT up 8.5% to $618.7m vs. $625.3m est (1.0% miss)
• Total dividend up 8.4% to 18 cps vs. Macquarie ests of 18 cps (in-line)

• Resident health insurance: Expect moderating industry growth, disciplined market share expansion, and claims per policy growth of 2.6%-2.9%.
• Non-resident health insurance: Target solid gross profit growth.
• Medibank Health: Forecast low double-digit organic operating profit growth and strategic M&A investment toward the top end of the $150–250m FY24–FY26 target.

What was the key takeaway from this result in one sentence?

One liner: A very solid result with underlying profits and dividends up 8.5%.

Were there any surprises in this result that you think investors need to be aware of?

Would you buy, hold or sell MPL off the back of this result?

Rating: Hold

We think Medibank's the clear industry leader in the private health insurance space and the outlook for the industry continues to be strong with good growth in participation rates and a solid outlook for margins. Though current valuations are reasonably full.

Are there any risks investors need to be aware of?

The moderating growth isn't a major concern, dropping from 2.3% to probably just above 2%. Customer downgrading has a natural offset with lower claims when people take lower grade products, so that's not a real issue either.

A bigger risk is some left field government reform in regards to forcing private health insurers to increase their payouts to private hospitals. I think this is a relatively low risk, particularly for Medibank because their gross margins for their business are actually lower today than they were pre-COVID.

From 1 to 5, where 1 is cheap and 5 is expensive, how much value are you seeing on the ASX today?

Rating: 4

The market is expensive. Looking at a number of different measures, whether relative to history or relative to bond yields, valuations are very high. There are pockets of the market that are extremely overvalued, whether it's the banks or tech or retail.

Pockets of interest are really more on the contrarian side where the market's extremely short-term focused on weak half-yearly results where we think the issues are transitory and the business fundamentals are sound.