Analysis of Swiss Life Holding AG (SLHN:VTX)

Today I'm going to talk to you about Swiss Life, one of my favourite Swiss titles, whose merits I have already praised to you one year ago. Let’s see what’s going on with the recently released 2018 numbers.

Valuation & dividend

Despite having gained more than 20% in 12 months, SLHN remains at very reasonable valuation levels, not to say even interesting. The stock is trading at:

• 13.63 times current recurring earnings
• 15.63 times average recurring earnings
• 0.98 times book value
• 1.24 times tangible assets
• 0.73 times sales
• 5.54 times current free cash flow
• 16.36 times the average free cash flow

EBITDA also represents 11,29% of the enterprise value, which confirms that Swiss Life is a great opportunity.

From a dividend perspective, the Swiss insurer is not far behind, since the yield amounts to almost 4%, which is a very rare commodity in these times (for a stock of this quality). In addition, distributions have increased at a sustained pace over the last five years, with a whopping 21,85% per year on average!

With such figures one might think that Swiss Life is squandering its profits for its shareholders, but this is far from being the case since the dividend represents:

• 53,77% of current recurring profit
• 61.63% of average recurring profit
• 21.85% of current free cash flow
• 64.52% of average free cash flow

The Zurich company therefore has all the cards in hand to continue to pay and, above all, to increase its distributions in the future.

Balance sheet & result

Just like the dividend, the profit, cash reserves and asset values are growing over the long term, which proves the solidity of Swiss Life's business model. The company is clearly succeeding in creating wealth for its shareholders and this is reflected in the price which has doubled over the last five years.

The net margin does not seem huge, with 5,33%, but the free cash flow margin amounts to 13,12%. On the profitability side, it is the ROA and CFROA that are modest, with 0.50%, respectively 1,26%, but the ROE amounts to 7,19%. It is certainly not a monster of profitability, but the holding company compensates for this with several other qualities. For example, let us mention a perfect mastery of management costs, very modest capital expenditure and a more than reasonable debt. The long-term debt ratio in relation to assets is in fact only 1,59% (down). Swiss Life would be able to pay off all its debt in less than four years by using its average free cash flow. It should also be noted that the debt only represents 0.23 times the equity.

The number of shares outstanding has remained unchanged since 2017, although it increased slightly just before.

Conclusion

Swiss Life is a solid company, with a history that dates back to 1857. Despite a constant increase in the share price over the past ten years, the stock remains perfectly accessible in terms of its valuation, with a particularly generous dividend in these times.

I believe that SLHN continues to be a bit undervalued. It is therefore definitely a stock to hold. As for whether to buy or strengthen a position, I am a little more divided because of the prices currently prevailing on the Swiss stock market. I still fear a bear market. Despite what one might believe, Swiss Life is only very slightly defensive, with a beta of 0.91 and a volatility of 17.38. It could therefore suffer from this, despite its affordable valuation.