Analysis of Swiss Life Holding AG (SLHN:VTX)

Here is already the 3rd analysis of Swiss Life Holding, a Swiss insurance company with a long history.

Valuation & dividend

The company's valuation ratios are attractive for a large, quality company:

• Current recurring price/profits: 12
• Average recurring price/profit: 14.6
• Price / book value: 0.89
• Price / tangible assets: 1.09
• Price / current free cash flow: 6.8
• Average price / free cash flow: 12.3
• Current EV/FCF: 8.85
• Average EV/FCF: 15.48
• EBIT/EV: 8.84%
• EBITDA/EV: 11.6%

The dividend is also very interesting, with a yield of 4.5%. It has increased at an average annual rate of nearly 20% over the last five years. Despite this, it remains well covered by the company's results, since it amounts to:

• 53% current recurring profits
• 63% average recurring profits
• 31% of current free cash flow
• 54% of average free cash flow

Swiss Life therefore has room to continue paying a dividend to its shareholders in the future and even to increase it further.

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 the Swiss insurer's business model. Swiss Life clearly succeeds in creating value for its owners and this is reflected in its share price, which has almost doubled over the last five years.

Margins are decent, with a free cash flow margin of 8.6% and a net margin of 4.92%. Profitability is struggling a bit, with an ROA of 0.53%, a CFROA of 0.95% and an ROE of 7.33%.

Long-term debt is increasing, but at a healthy level (1.8% of assets). Total debt is only 0.25 times equity and could be repaid in three and a half years using average free cash flow.

The number of shares outstanding has been stable over the past five years (apart from a small increase in 2017-2018, corrected in 2019).

Conclusion

The average shareholder return over the past five years has been over 3%, taking into account the dividend, share issuances/retirements and a slight reduction in net debt. To do this, Swiss Life has used less than 40% of its FCF, which leaves it with substantial room to continue to reward its owners in one way or another in the future.

This ability to generate liquidity is one of the strengths of the Swiss insurer, helped by very low overheads (17%) and derisory capital expenditure, representing only 4% of profits.

With Swiss Life, we are positioned on a slightly defensive company, which translates into a volatility of 15% and a beta of 0.93. This has not prevented it from being punished more than the rest of the market since the start of the "Corona-Crash". Some investors may fear that the company will suddenly have to take out tons of cash to pay its dues following the increase in deaths. However, let us remember that despite all the talk about it, Corona currently kills far fewer people than the flu or the road, for example. And then life insurance mainly concerns young people, before retirement age, who are less affected by Corona deaths. On the contrary, cynically speaking, Swiss Life should even benefit from the virus, since it also pays pensions to retirees...

If the market momentum was not as rotten as it is now, I would be quite keen to strengthen my current position. However, the current crisis has taken away the global indices and Swiss Life at the same time. With a drop of 12% currently, the price is approaching a critical technical zone that will be worth monitoring in the coming days.