NIB Holdings shares fall as analysts make downgrades
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The news: Shares in NIB Holdings slumped on the ASX as analysts made downgrades on the health insurer, after it projected a first-half operating loss and set lower-than-expected full-year guidance on Tuesday.
The numbers: NIB shares fell 3.9% to $5.73 by 2:50pm AEDT, having closed 0.7% lower in the previous session.
Analysts made the following downgrades:
- Macquarie downgraded the stock from 'neutral' to 'underperform' and cut its valuation from $6.30 to $5.45;
- Citi retained its 'neutral' rating but lowered its target price from $6.55 to $6.45; and
- Morningstar kept its fair value estimate of $7.40 but slashed its FY25 profit forecast by 11% to $240 million.
The context: Macquarie, Citi and Morningstar analysts all noted that its New Zealand business was suffering higher-than-expected claims inflation, pushing NIB's full-year guidance below consensus forecasts.
Morningstar analysts said they expect claims inflation in New Zealand to improve with price increases and cost savings in the second half of the year.
Likewise, Citi analysts noted that NIB is confident the impact is temporary, and expects to more than reverse the first-half loss in New Zealand from a combination of higher pricing, cost savings and moderation in claims inflation.
Citi lowered its earnings-per-share forecasts by 6% in FY25 and 0.2% in both FY26 and FY27.
Macquarie analysts said that it is "highly likely" that NIB's acquisition costs for Australian resident health insurance (ARHI) will increase in FY25 compared to FY24.
Macquarie cut its earnings forecasts by 18.2% in FY25 and 12.5% in FY26 reflecting higher claims experience in New Zealand and Australia on volume and indexation.
What they said: "As ARHI claims continue to rebound, coupled with the CEO change, in our view [NIB]'s earnings outlook could get worse before it gets better," Macquarie analysts said.
Citi analysts said: "Although the stock may be inexpensive, we remain in no rush to enter it".
"We will believe the market is likely to remain a little wary of the CEO change and require more evidence NIB as ARHI claims inflation under control before buying it wholeheartedly," they said.
The sources: Macquarie research, Citi research, Morningstar research
