Stocks In Focus: NIB, August 6 2025

0:10G'day and welcome to Motley Fool Stocks in Focus, our YouTube series and podcast series, That's right. It's in both places where you can hear one of our team talk about one of the companies in Australia that is either big, widely held in the news, topical, or just simply worth talking about, hence Stocks in Focus. Now, I will say up front, these are not formal recommendations. I will ask our team, I always do, asking them what they think about the prospects of the company, but it's not a formal recommendation. And while I'm here, let me throw out to you just quickly, we only give general advice, not personal advice.

0:41We'll talk about a company today. NIV is the company, by the way. We'll talk about that today. And then And you need to work out whether what we say applies appropriately to your circumstance. That is, we provide general advice, not personal advice. We can't tell you what you should do. Lastly, this is a point in time. We're recording this in early August 2025. In a day, a week, a month, a year, or 10 years time, maybe our views are identical, or maybe they've changed substantially. So just please bear that in mind. It is a point in time view. We won't be updating this view unless we come around to talk about the company again at some point.

1:08But deliberately between now and then, we're not suggesting this will always be whatever Darius, I'm going to introduce in a second, thinks it is. And speaking of him, Darius is Gami. G'day. G'day, Scott. How are you going? Mate, very well. Thanks for letting me get that boilerplate out of the way. Mate, we're going to talk about NIB. Now, this is a health insurer. I own shares, by the way, so I will put that on the record very early up front so everyone knows where we're coming from. That being said, I don't really care. No one cares what I think. They care about what you think. So let's start the story.

1:35Tell us about NIB. We all kind of know what the health insurer, but tell us about the business. Yeah. So NIB, it's Australia's fourth largest health insurer, actually. It's also the third largest travel insurer in Australia as well. And so it provides its health and medical insurance services to over 1.9 million Australian and New Zealand residents. It's also got a massive international students and workers insurance segment that is for around 200 ,000 people. But the company really, it operates through five distinct, what I'll say are very relatively distinct business segments, as distinct as you can get while they're all still in insurance.

2:16But the largest is what it calls its Australian residence health insurance segment. And so that makes up around about 80 % of revenue. And it's kind of your standard domestic insurance health business, really. So it's got all the hospital cover, extras cover, combined policies. It provides everything from your basic essentials packages for singles, young Australians, all the way through to comprehensive packages, which are aimed at families, seniors. Something else that's interesting about that segment, though, is it actually has Australia's only specialist corporate health insurer. So that's providing health insurance to corporate groups, kind of similar to they do in the US, where a company wants to provide insurance to employees rather than those employees needing to have their own insurance.

3:09But that's the largest segment. The second largest segment is NIB New Zealand, which makes up around about 10 % of revenue. But despite that, it's actually New Zealand's second largest health insurance provider for the country. It's very similar to the Australian Residence Health Insurance segment, except as you could probably understand, it's in New Zealand, of course. Beyond that, there is another smaller segment, only 6 % of revenue. That's the in-down health insurance segment that I kind of alluded to. So this one provides coverage for students, workers, anyone who's looking to really migrate to Australia or obtain a visa.

3:53Obtaining those visas requires meeting certain key requirements. One of those key requirements is actually having the appropriate travel or health insurance that you would need for your stay. So NIB provides that. There's a very, very, very small, it used to be quite a bit bigger travel insurance segment for NIB, but with COVID that got largely decimated. It has recovered somewhat, but it currently only represents about 0.2 % of revenue. So it's a real, not a big contributor to the business. Let's put it that way. And then finally is the NIB Thrive business. This is a new segment from the company.

4:34I say new, but it's been a few years now, I think, in the making. This is the NDIS plan management business. and it represents about 1.5 % of revenue at the moment, but it is growing quite quickly. They're growing it mainly through acquisitions to try and increase the number of people that they support through the NDIS, through their plan management services. And it's actually one of Australia's largest NDIS plan management offerings in Australia. But yeah, that's NAB in a nutshell. That's a very, very thorough review. Thank you for doing it. Signed a course in Newcastle. It was it? Was it Newcastle something?

5:11I can't know what it used to be called. I think it didn't come out of BHP, maybe. I can't exactly remember. Anyway, long and storied business, as you say, now pretty big in and of itself. Let's go through the investment case. Let's talk about the pros and the cons. I will ask you at the end to wrap it up and give me a view on the company's long-term prospects at the current share price. But before we do that, let's just separate the two. By the way, the monthly fee, we don't try and be balanced for its own sake. Our job is not to say 50-50, the world is flat, the world is round. We will give you generally a view, particularly our recommendations we always do, but we do a formal recommendation.

5:41We say, here's what we like it. Here's the risks. This time around, we're just going to do here's the pros, here's the cons. Here's why you might want to buy. Here's what you might want to think about before you buy, or maybe why you may not want to buy NIB shares. So let's do those pros, Darius. What are the reasons that one of our viewers or listeners on the podcast might want to think about buying shares in NIB? Yeah, there's plenty to like about NIB. It's a great company. One thing that jumps to mind is the diversification of its offerings. It's really easy to think of NID as just an insurance provider.

6:10That can make it sound very concentrated as far as a business operation would go. But each of its five business segments are very distinct. They're very diverse in what they're offering, who they're targeting in terms of the market, the part of the market that they're targeting, the geographies that they're targeting. And that's really meant that revenue has been quite resilient for the company over the years. When one segment has lagged behind the travel segment, for example, another segment has performed quite strongly. From memory, when the travel segment sort of fell behind during COVID, it also meant that the Australian residents' health insurance segment was able to grow quite strongly because everyone was staying at home.

6:52And so no one was really needing to claim any of their policies. So that segment and actually performed quite strongly. But the smaller segments in particular, NIB Thrive, for example, it provides really plenty of long-term opportunity and long-term potential. NDIS spending and the number of participants in the NDIS that's expected to grow really strongly over the coming years, the coming decade. And that should really mean an increase in the number of people needing plan management services and therefore the need for NIB services. Another thing I like about the business is its ability to increase premiums.

7:29So as of, I think it was the 1st of April, April Fool's Day, premiums rose 5.79 % for NIB. And this was approved by the health minister, Mark Butler. This is above the industry average. So the industry average for this year was actually 3.73%. The NIB raised its premiums above this. And this same trend can actually be seen over the long term from NIB. It's managed to increase its premiums on average 3.9 % per year over the last five years, while the industry average has only been 3%. And I think this really highlights the strength of NIB's position in the market. Because while it's raising its premiums above industry average, these premium increases haven't actually come with any loss of members.

8:19In fact, it's actually been quite the opposite, really. NIB has continued to grow its market share. So in 2012, its market share was around 7.6%. In 2021, this had grown to 9.3%. And then despite raising its premiums above the industry average, its market share as of 2025, May, is now 9.7%. The large players in the market continue to gain market share. So it's not just NIB alone in terms of its increasing market share. the top four players in 2021 they provided around 73.3 percent of the total market today they provide 74.4 so they've all been increasing their share but i think this is partly due to consolidation within the industry which leads me to my next thing i like about the business which is the the current hardening insurance cycle and so what we see during a hardening insurance cycle is that consolidation and it's often due to heightened claims environment and claims inflation.

9:21Smaller not-for-profits during this sort of time, and this is what brings about the consolidation, smaller not-for-profit funds that are subscale, they serve and they're in a very specific niche in the market. What tends to happen here is they will struggle during these periods. The claims will increase. They won't be able to support that and so they'll go out of business. and that means they can be acquired at relatively cheap valuations. So we saw a perfect example of this recently, private hospital operator HealthScope. They terminated their hospital agreement with 22 small to medium-sized not-for-profit insurers.

10:00This was due to their small size. They just weren't able to come to mutual terms with HealthScope. And I think this highlights the strength of NIB's scale in these situations and I think it could really be a good catalyst for the company's future greater market share gains moving forward. But finally, just to quickly touch on the fundamentals of the business, I should probably mention some facts and figures, of course. NIB produced an increase in revenue of 7 % in the most recent half year, which is quite a good rate for a company of its valuation. Profit after tax did fall during this time. And as I mentioned, it's due to that Harding insurance cycle.

10:42No one's really fully immune to it necessarily. I think while this does cause some short-term pain, over the long term, I think this, with the scale that I mentioned, will favor the business. NIB is currently trading at around 22 times trailing earnings, which I think is roughly in line with where its historical average has been. but NIB also boasts a fully franked dividend yield of 3.6%. So if potential members are interested in income, I think that's a really good level in my opinion and provides a good opportunity for members to be patient with the business. Very nice. Thank you. So I'll get into the cons in a second.

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12:23All right, Darius, let's go to the cons, mate. We talked about why NLA might be a stock that people might want to at least consider for their portfolios, but what would keep you away or what should they consider at least before deciding to buy shares in NIB? Yeah, there's plenty to be considerate of when considering an investment in NIB. One thing is, I mentioned before those premium increases, the company has been able to increase its premiums above the market average, but this might not always be the case. Premium increases, what you might not know is they have to be applied for and approved by the Department of Health before they can actually go into place.

13:00And while this can work in favor of a health insurer, it can also work against them depending on prevailing market conditions and economic conditions. So 5.79 % was a really good increase in 2025, quite a bit above the market average from memory, but we can't necessarily rely on that being the norm moving forward. It would be good if it is, but we can't rely on it really. Next up would be competition, I think. Competition is a big thing. To date, NIB has really been growing its market share. I mentioned that the larger players in the market are also growing their market share. All of them have been stealing it from the smaller players in the market, whether it's through acquisition or through these companies folding.

13:43NIB's focus also appears to be on, at the moment at least, achieving greater earnings rather than customer acquisition, given its large increase in premiums and comparable to the market average. At some point, it will become much harder to win new customers from the larger incumbents, from these smaller companies. When this happens, we might see NIB accepting lower premium increases, lower margins so that it can better compete. The final risk that I should raise is that NIB Thrive business, the company's invested, while it adds diversification to NIB, it's quite a bit different to the insurance offering, the traditional insurance offering.

14:25It's still very much an early stage endeavor for NIB. The segment's yet to prove real solid earnings power. And despite this, NIB has invested quite a bit into these acquisitions, quite a bit of investment to building this segment. So I think time will really tell whether this segment can wield a competitive advantage for NIB or if it just doesn't quite gain legs. Very nice. That's a bit to consider, a lot to like, some things to be mindful of. So here's where I'm going to ask you to put your neck on the line. At least give us a sense. We're long-term investors at the Multifill. Hopefully our listeners and viewers know that by now.

15:03And so we're looking at five plus years for our investment horizons. By the way, the quick answer to why is in the short term, the market just does whatever it wants. Sentiment, emotions, the non-fundamentals, you mentioned fundamentals earlier, Darius, the non-fundamental parts of investing just take over, right? And trying to guess what other people might think and then bluff and double bluff all the way down is really, really hard. Probably, I would say impossible, but just really, really difficult. If you can though, take a longer term view, you can focus on the business itself. And that's what we've done.

15:28Darius hasn't talked at all about what the market thinks or sentiment or some sort of short term ups or downs. It's just, hey, do we reckon this is a long term winner or not? So, So that's what I'm going to ask Darius, mate. Over the next five years or so, given you've talked about the pros, you've talked about the cons, you've talked about the valuations, what do you reckon the odds are that it's going to beat the market over that time period? Is it a market beater? Is it a market lagger? What's your best guess? Yeah, I think NAB is a company really geared for the long term. It's got a very long-term focus.

15:55Something I didn't mention about NAB generally, sorry, NAB is it generally boasts quite a young policyholder base and this has really been a focus of the company for some time. I think this can be quite good because younger members tend to get sick less often, need to claim less. I think this focus from NAB, coupled with its market share gains, the diversification of its offerings, I think this puts it in a really strong position to produce market-beating returns over the long term. So I think it will beat the market over the long term. Very good. You heard it here first, Fools. Thank you for tuning in on the YouTube channel, on the Motley Fool Money podcast.

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