Momentum In French Health & Protection Products Will Support Future Profitability

Key Takeaways

• Swiss Life's strategic program and asset management performance indicate potential revenue growth, enhanced earnings, and increased cash returns to shareholders.
  
• Strong market performance in France and effective capital strategies, including share buybacks, signal improved profitability and attractive shareholder returns.
  
• Decreased insurance revenues and rising expenses could pressure financial growth, while increased borrowing costs and non-recurring cash benefits challenge future earnings and liquidity.

Catalysts

Provides life, pensions, and financial solutions for private and corporate clients.

• Swiss Life's new strategic program, Swiss Life 2027, focuses on expanding customer base, increasing advisers, and improving operational efficiency, which are expected to enhance earnings and cash returns to shareholders. This could positively impact revenue and net margins.
  
• The strong performance of the Asset Management segment, particularly through real estate project development and non-recurring income, indicates potential for sustained fee income growth, driving earnings.
  
• Continuing momentum in the French insurance market, especially in Health & Protection and unit-linked life insurance products, suggests improved profitability and revenue growth opportunities.
  
• The sustained low interest rate environment, coupled with an expected reversal of adverse effects from interest rate differentials, could enhance the net investment income, thus positively impacting earnings.
  
• Strategic share buybacks and dividend increases, with a high payout ratio, are expected to continue, which will enhance earnings per share and provide attractive returns to shareholders.

Swiss Life Holding Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Swiss Life Holding's revenue will decrease by 8.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.2% today to 14.5% in 3 years time.
• Analysts expect earnings to reach CHF 1.3 billion (and earnings per share of CHF 47.71) by about March 2028, up from CHF 1.2 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CHF1.5 billion in earnings, and the most bearish expecting CHF923 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.1x on those 2028 earnings, down from 18.4x today. This future PE is lower than the current PE for the GB Insurance industry at 17.7x.
• Analysts expect the number of shares outstanding to decline by 1.37% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 4.8%, as per the Simply Wall St company report.

Swiss Life Holding Future Earnings Per Share Growth

Risks

• Insurance revenues decreased by 1% due to lower CSM releases and FX effects, potentially impacting future revenue growth.
  
• Operating expenses increased by 6% due to business growth and investments, which could pressure net margins if not offset by sufficient revenue growth.
  
• Borrowing costs increased to CHF 146 million, partly due to refinancing, which may affect future earnings if interest rates continue to rise.
  
• The value of new business decreased in several segments, which could signal challenges in maintaining growth, potentially impacting long-term revenue and profit figures.
  
• Cash remittances benefited from one-off effects in 2024, which are not expected to repeat in 2025, possibly affecting future liquidity and cash returns to shareholders.

Valuation

• The analysts have a consensus price target of CHF716.091 for Swiss Life Holding based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CHF805.0, and the most bearish reporting a price target of just CHF630.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CHF9.0 billion, earnings will come to CHF1.3 billion, and it would be trading on a PE ratio of 17.1x, assuming you use a discount rate of 4.8%.
  
• Given the current share price of CHF784.2, the analyst price target of CHF716.09 is 9.5% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.