Swiss Life Holding AG (SLHN:SWX) stock: Analysis

The action Swiss Life is traded on the Zurich Stock Exchange under the ticker SLHN. Swiss Life Holding AG is a Swiss company that offers a range of life insurance policies, retirement/disability annuities and investments to groups and individuals. The company focuses its business primarily in Switzerland, France, Germany, Liechtenstein, Luxembourg, Singapore and Dubai. It was founded as Rentenanstalt in 1857 and took over "La Suisse Assurances" in 1988 (dismantled and then liquidated in 2007). It is the largest life insurance group in Switzerland and is one of the leading life insurers in Germany, France and Luxembourg. This analysis follows the one already carried out in 2018.

Swiss Life share valuation

SLHN continues to trade at a fair price, which is quite remarkable in these times, as can be seen from the following ratios:

• current / average price / earnings: 13.9 / 14.2
• price/book value: 0.85
• price/tangible assets: 1.03
• price/sales: 0.63
• price/current/average free cash flow: 34.54 / 10.37
• Current/average EV/FCF: 44.66 / 13.08
• EBIT/EV: 7.83%
• EBITDA/EV: 10.22%

It's not all rosy, of course. In particular, we can see that the free cash flow of the last financial year is problematic. However, if we rely on the average figures of the last five years, the valuation remains quite reasonable. Let's not forget the fickle nature of profits and cash flows.

Swiss Life share dividend

Swiss Life is particularly generous to its shareholders, with a yield of 4.6%. This is quite exceptional in this period of buying madness. One might believe a priori that this generosity is achieved by squandering the results. However, the dividend only represents 64% of the profits (current and average). Compared to the current FCF, this is obviously more problematic, with 163% used to pay the shareholders. The company has therefore used more cash than it made in the last financial year to remunerate its owners. Once again, this figure must be put into perspective, because taking into account the average figures over the last five years, the FCF distribution ratio is even lower than that of the profit, with 48%. So there is no need to worry about the sustainability of the dividend. All the chances are there for it to continue to be paid and even to increase in the future. It has also grown by 13.8% per year over the last five years.

A solid business model

Just like the dividend, the turnover, profits and asset value of the Swiss insurer are increasing over the long term. This proves the solidity of Swiss Life's business model. This is reflected in the share price of SLHN, which has increased by 80% over the last five years, performing almost twice as well as the market.

Profitability and profitability

Swiss Life's net margin stands at a fairly modest 4.5%. In addition, as we have already mentioned, the holding company encountered some difficulties with its cash flow over the last financial year. As a result, the margin from a free cash flow perspective is substantially lower, at only 1.8%. The cash flow profitability of assets follows a similar path, at only 0.2%. In relation to assets, it is barely higher, at 0.4%. The ROE is better, but far from extraordinary, at 6% thanks to the effect of debt. These concerns about profitability and profitability are not new. We had already made this observation in 2018. This probably partly explains why SLHN is trading at a relatively cheap price.

Debt

The long-term debt-to-asset ratio is low, at only 1.76% (a very slight decrease). Debt represents only 0.24 times equity. It could be wiped out in less than three years using the average free cash flow available.

Return for the shareholder

The debt repayment represents a small return for the shareholder of around 0.63%. The number of shares outstanding in the holding company is stable over time. No gain for investors in the form of a reduction in capital, but at least the profits are not dissolved through an increase in outstanding shares. With the dividend, the total return for the shareholder has thus represented an annual average of 4% over the last five years, which is correct. This is all the more remarkable since Swiss Life has only used 42% of its FCF during this period to reward its owners. The company therefore has significant room to continue with this policy in the future, as we have already seen for the dividend.

Volatility of Swiss Life shares

SLHN has posted a volatility of 24.65% over the last twelve months for a beta of 1.54. This is quite significant for an activity that is a priori defensive, especially since this period is already outside the "corona crash" of last spring. At that time, the stock had been literally pummeled, even more than the market. The second correction took place last fall, corresponding to the rise in cases. Swiss Life suffered considerably there too. Each of these declines, however, represented a very good entry point to buy SLHN at a good price. The Chinese virus also explains why Swiss Life shares remain cheap even today.

Conclusion

SLHN shares are still trading at a very affordable price, despite the speculative madness of recent years. We have seen that its profitability, its profitability and more recently COVID could partly explain this situation. Despite this, the fact remains that Swiss Life shares happily remunerate their shareholders and that the dividend remains well covered by the fundamentals. SLHN can thus nicely fill a portfolio fund over the long term.

I owned this title for quite some time. I no longer own it now, as it no longer fits into my investment criteria. However, it is certainly one of the very few stocks from large, quality companies that remains affordable today.