Medibank Private shares have recovered the losses after the cyber breach 2 years ago, but what’s next?

Medibank Private (ASX:MPL) shares took a big hit nearly 2 years ago due to the infamous cyber breach. Investors who chose to buy the dip and have held ever since have done quite well. But what’s next for the $10bn health insurer that was once government owned?

Medibank Private (ASX:MPL) share price chart, log scale (Source: TradingView)

Medibank’s history

Medibank began in 1976 as a not-for-profit private health insurer. It spent 2 decades operated by a statutory body formed for this purpose, before it became a company that was solely owned by the federal government. In the mid 2000s it diversified into other kinds of insurance and gradually became a for-profit entity. 2014 saw the company privatised and listed on the ASX, capped at $5.7bn.

2022 was its annus horribilus with a data breach resulting in the personal details of 9.7 million current and former customers published on the dark web. Medibank tried to blame it on a third party contractor, but a federal court case would later reveal that the company was at least partially to blame. Specifically, it failed to require workers to use multi-factor authentication and one particular IT service desk operator saved his username and password for several accounts to his personal internet browser, which had access to most of Medibank’s systems, including network drives. That computer was compromised by malware, and credentials were obtained by the hacker, who logged in and was able to do because of a lack of Two-Factor-Authentication. He remained in the network for nearly two months.

Medibank Private shares have regained losses, but what is next?

Medibank shares took a hit in the fall out, but they have since recovered. Nonetheless, Medibank has new issues it had to address. The company faces intense competition from rivals that offer cheaper policies. There are calls from struggling private hospitals to get insurers (particularly larger, profitable companies) to put more money into the healthcare systems – a potential lose-lose situation for the company because it could lose members in a cost of living crisis.

Medibank is taking ‘soft’ steps, agreeing earlier this month to out-of-cycle funding for private hospitals operator Healthscope, along with peers NIB and HCF, but has made clear that it wants hospitals to be more efficient and that this would go a longer way than more money ever would. Healthscope lost $649m following a write-down of its hospitals, and has $1.6bn in debt – hence the need for more money.

Even though Medibank’s FY24 profit rose 60% to $492.5m, the company missed its target to increase permanent resident policy numbers. Specifically numbers only grew 0.7% after it had forecasted 1.2-1.5%. It was not all bad news – its non-resident policy growth increased 25% as returning foreign students took up its cover, although of course this growth will not persist if politicians have their way. There is also the problem that premium rises are restricted by the government, and premium rises have been below inflation – the most recent rise was 3.03% on average while other insurance products went up in the mid-teens.

At its FY24 results, Medibank told investors industry growth would moderate this year, but the industry would stabilise in FY26 and the company would increase its market share. The company’s P/E multiple appears cheap, at 17.7x for FY25. However, its PEG multiple is 8x, and the average 12-month target price of $4.03, not quite 10% above the market share. Analysts expect a flat profit for FY25, but 5% growth in FY26. Revenue is forecast to increase 5% in FY25 and 4% in FY26.

Conclusion

We congratulate investors who profited from ‘buying the dip’ on Medibank, but we are not so confident about its ability to grow from here, at least for the next 12 months. Amidst a highly-competitive environment, facing a cost of living crisis, we are not so confident FY25 will be a year of growth…but FY26 could be, so we may revisit the company at that point.

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