New Index-Based Offerings And Adviser Recruitment Will Shape Future Success

Key Takeaways

• Strategic investments and increased adviser recruiting suggest potential for future revenue growth and enhanced shareholder value.
  
• High return on equity and strong performance in France indicate strong profitability and improved net margins.
  
• Dependence on real estate normalization and asset management growth faces challenges, with concerns over nonrecurring income and business volatility potentially impacting future stability and profitability.

Catalysts

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

• Swiss Life's strategic investments in growth initiatives, such as the new index-based investment offering and increased recruiting efforts for financial advisers, suggest potential for future revenue growth.
  
• The company's ability to maintain a high return on equity of 17.8%, above their target range of 10%-12%, points to strong profitability, which can impact net margins positively over time.
  
• The expectation of a 30% nonrecurring income contribution from Swiss Life Asset Managers, driven by real estate transactions, indicates potential for increased earnings stability and growth.
  
• Efficiency in cash remittances and beating cumulative targets with strong upstreaming of statutory profits suggests that future cash flows and dividend payouts could enhance shareholder value and earnings per share (EPS).
  
• The positive performance and increased revenue in France, driven by higher unit-linked fee income and banking business, highlight future revenue growth potential and improved net margins from high-margin products.

Swiss Life Holding Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Swiss Life Holding's revenue will decrease by 7.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.4% today to 13.3% in 3 years time.
• Analysts expect earnings to reach CHF 1.2 billion (and earnings per share of CHF 43.9) by about February 2028, up from CHF 1.1 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CHF1.3 billion in earnings, and the most bearish expecting CHF806 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.8x on those 2028 earnings, down from 19.6x today. This future PE is lower than the current PE for the GB Insurance industry at 18.9x.
• Analysts expect the number of shares outstanding to grow by 0.37% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 4.76%, as per the Simply Wall St company report.

Swiss Life Holding Future Earnings Per Share Growth

Risks

• The fee result target achievement is dependent on the normalization of the real estate markets in Germany and France, which may not occur as expected, impacting revenue and earnings from fee-related activities.
  
• The net new assets in the TPAM business are expected to be lower than the previous year, which could affect asset management revenue growth expectations.
  
• The value of new business decreased significantly in the Germany segment due to a lower unit-linked contribution and interest rate effects, potentially impacting future revenue and profitability.
  
• Concerns over the nonrecurring nature of some asset manager income, which might not be sustainable in the longer term, could affect stability and predictability of future revenue streams.
  
• The potential volatility and unpredictability in the French non-life business performance, which despite recent improvements, could affect the segment's operating results going forward.

Valuation

• The analysts have a consensus price target of CHF709.091 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 CHF9.1 billion, earnings will come to CHF1.2 billion, and it would be trading on a PE ratio of 18.8x, assuming you use a discount rate of 4.8%.
  
• Given the current share price of CHF755.4, the analyst price target of CHF709.09 is 6.5% 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.