ASX:MPL

Medibank has been under selling pressure on fears of rising political risk.  The Labour Party appears likely to campaign into the next Federal Election with a promise to limit annual premium rate increases to 2% for two years. This is well below the 4-6% historical trend.

Despite the concern highlighted above, we view Medibank as a buying opportunity, as it approaches an oversold level.

A rally back to $3.00 should provide an opportunity to set covered call options and generate additional premium income to complement the 6.5 cent  September dividend.

Medibank Private

Our ALGO engine triggered a buy signal for MPL into the ASX close at $2.97.

This “higher low” structure is referenced to the August 23rd low trade of $2.66.

The half-yearly results released on February 16th were mixed: net profits grew by 6% but net investment income was 15% lower at $69 million.

As such, we would consider MPL a buy/write opportunity when the share price rises back into the $3.10 area.

MPL will pay a 6.75 cent dividend on September 28th, which puts it on a 4.4% annual yield at current prices.

Medi-Bank Private

Medibank is trading near the $3.00 support level.

We see little in the way of earning growth over the next 12 months, however, with stock now on a 4.2% dividend yield, we expect to see renewed buying interest.

We recommend overlaying a covered call strategy to generate 10 – 12% cash flow on an annualised basis.

Buy near the support zone and look for a rally back to $3.15 before setting the call strategy.

Medibank Private

Medibank delivered 1H18 NPAT of $245 million, which is an increase of 6% versus the same time last year.

Operating conditions are expected to remain largely unchanged and we expect revenue and underlying profit to remain flat in FY19.

With the stock trading 20x earnings and 4.1% yield, investors should add an at-the-money-call option to strip out the maximum cash flow from dividends, call option premium and franking credits.

Medibank

Shares of Medibank  Private have reached a new all-time high of $3.38 as the Federal Government approved a 3.95% increase in fees for calendar year 2018.

The news was a shot-in-arm for the private insurance provider whose shares have gained over 6.5% in the last 7 trading sessions.

Since our last ALGO buy signal in May at $2.73, the stock has picked up almost 24%. MPL shares are currently trading at 21X earnings on a 3.6% yield

Internal momentum indicators have now reached overbought territory and we suggest exiting long positions at, or near, the $3.30 level.

We will look for a pullback in MPL to reenter long positions and update accordingly.

MediBank Private

Medibank remains in our ASX50 model portfolio from lower levels and we continue to view the stock as a worthwhile buy-write strategy at the current “higher low” price formation.

MPL pays $0.053 dividend on the the 7th of March and when complimented with a $3.30 June call option, (credit  $0.11), the strategy delivers 10%+ in annualised cash flow.

MPL reports 1H18 earnings on the 16th of February and the market is looking for 3 – 5% EPS growth and NPAT of $230 million.

Medibank’s FY17 group NPAT of A$450 million was slightly ahead of consensus, largely on higher investment income with a  2H16 dividend of $0.0675 cents per share.

Based on FY18 EPS growth of 1 – 3%, we have MPL on a forward yield of 4.4%.