Medibank is struggling with top line growth of 1.5%, meanwhile underlying cost growth is running at an average of 5%.
We were recent buyers of MPL at $2.35 and with the stock hitting our $2.60 price target, we sold calls to enhance to yield.
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MPL is likely to trades sideways and investors should use covered calls to enhance the yield. Excluding the added income from call options, MPL trades on an FY17 forward yield of 4.7%, assuming profit of $420m, EPS of $0.15 and DPS of $0.12.
Through adding a covered call we are delivering in excess of 10% cash flow (plus franking credit) and allowing for moderate capital growth.
