NIB Looking Much Healthier Than Expected, but Fat Margins Are Unsustainable

Narrow-moat NIB’s fiscal 2021 underlying operating profit guidance of AUD 220 million-225 million implies a much stronger second half than we had forecast. It implies second-half profit up 53% on first-half fiscal 2021, and up 47% on fiscal 2020. Claims deferred during the coronavirus are not being caught up, and risk equalisation payments remain lower than usual. Older age groups, more vulnerable to COVID-19, have continued to pay their insurance premiums but are reluctant to undertake elective procedures. With policyholder numbers up 3.7% and premium increases of 2.9% from October 2020 and 4.4% from April 2021, lower claims are propelling profit and margins. We forecast average claims per policyholder to fall 1% in fiscal 2021. We increase our fiscal 2021 underlying profit forecast by 15%, which implies underlying operating profit at the bottom end of guidance, and assumes lower claims do not persist. While lower claims are positive in the short term, they’re not material enough to increase our AUD 5.60 fair value estimate.