• Medibank sale could net government up to $5.5b

What’s on the table?

The prospectus for the Medibank Private float is out, so if you’re thinking about buying Medibank Private shares here’s a few things to take into account:

• You will need at least $2000 to participate.
• The offer opens on 28 October and closes on 14 November.
• Retail investors will be able to buy shares at between $1.55 and $2 each.
• The shares are not government-guaranteed so their value might fluctuate according to how the business performs.
• Directors have highlighted business and other risks that may impact profitability.

Net Profit forecast to grow

The government and directors of Medibank Private have painted a positive outlook on the company’s 2015 profit, despite an expected slide in returns from its massive $1.5 billion investment portfolio.

According to disclosures in the prospectus, the 2015 net profit is forecast to come in at $250.9 million – up 90 per cent on the 2014 result of $130.8 million.

The sharp hike in full-year profit is a tad misleading, however, because Medibank Private absorbed special one-off costs last year that are not likely to reoccur.

If the one-off cost items are put to one side, the 2015 profit is forecast to be in line with the 2014 result.

Dividend Outlook

The company will aim to distribute up to 80 per cent of its future profits in dividends to shareholders.

In 2015, shareholders are forecast to receive a dividend of 4.9 cents per share, which equates to an aggregate payout of $135 million. The government will also receive a final dividend of about $42 million.

According to the prospectus, Medibank is expected to continue growing revenue from selling insurance policies, but it is likely to suffer a fall in investment income in 2015.

Medibank manages around $1.5 billion worth of bonds and other investments, which delivered a net return of $114 million last year. That is expected to fall to $90 million in 2015.

Directors address ownership debate

The government has reiterated its belief that policyholders have no ownership claims over the fund’s assets.

“There have also been suggestions that Policyholders should be entitled to some form of participation in the sale or the proceeds of the sale,” the prospectus stated.

“The Commonwealth has considered these suggestions and has concluded that there are no such rights or entitlements.”

While acknowledging that legal action may be brought after completion of the float, the government asserted that “any such claim is unlikely to have merit”.