Political Inertia Underpins Strong Earnings for Medibank

Valuations stretched - deal performance depends on book build and index inclusion

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Equity Bottom-Up

Medibank Private’s earnings for fiscal 2017 are expected to be lower than previously forecast as new CEO Craig Drummond swings the axe on senior executives and implements “clear focus and accountability on delivering improved outcomes”. Craig Drummond started on July 4, 2016, and presented strong fiscal 2016 financial results mid-August, but provided a downbeat outlook for fiscal 2017. The senior executive changes, announced Sept. 14, surprised; they suggest the new CEO is undertaking a major review of the business, and we would not be surprised if restructuring charges are announced at Medibank’s annual investor day on Nov. 30, 2016, or with first-half fiscal 2017 results in February 2017.Insurance provisions could also be boosted, with fiscal 2017 profit likely to suffer. We reduce our earnings forecasts to reflect the likelihood of restructuring and provision charges in fiscal 2017, as well as more subdued operating conditions for Medibank.Analyst: David Ellis

Medibank Private’s earnings for fiscal 2017 are expected to be lower than previously forecast as new CEO Craig Drummond swings the axe on senior executives and implements “clear focus and accountability on delivering improved outcomes”. Craig Drummond started on July 4, 2016, and presented strong fiscal 2016 financial results mid-August, but provided a downbeat outlook for fiscal 2017. The senior executive changes, announced Sept. 14, surprised; they suggest the new CEO is undertaking a major review of the business, and we would not be surprised if restructuring charges are announced at Medibank’s annual investor day on Nov. 30, 2016, or with first-half fiscal 2017 results in February 2017.Insurance provisions could also be boosted, with fiscal 2017 profit likely to suffer. We reduce our earnings forecasts to reflect the likelihood of restructuring and provision charges in fiscal 2017, as well as more subdued operating conditions for Medibank.Analyst: David Ellis

Near-Term Profit Risks Increase as New Medibank CEO Swings the Axe