Swiss Life Holding AG (OTCPK:SZLMY) has showed outstanding performance in the past year, beating analysts' company profit estimates. Switzerland's biggest life insurance company had a substantial share price gain of 7.6% after announcing $533 million in net income, above the $497 estimate by Bloomberg analysts. The company has also agreed to buy German real estate management company, Corpus Sireo, with the aim to accelerate expansion in money management. Technical analysis is also currently showing a great opportunity to enter long in the stock. The risk is present and has been analyzed.
Swiss Life has experienced an outstanding year. Its biggest unit in Switzerland had increased by 12%, reaching $7.2 billion; mainly driven by occupational benefits business. The total company's premium grew by 5% to $12 billion. The French division has achieved a 26% rise in operating profit to $128 million, with an increase in premium by 3.3% to $2.6 billion. The overall international unit, which offers life insurance to high net worth individuals, has reached $19.6 million. Furthermore, the company is improving its balance sheets by achieving 85% of its target cost cuts, reaching nearly $174 million by the next year. As can be seen, the company has sounds fundamental statistics, which offers a hint for a further share price increase.
The valuation data is also showing favorable results. The current real value of the stock is $287.53, with the upside potential being $300, a $40 increase from the current price. The value is constructed by measuring the operating margin of 4.47%, shares outstanding of 32.12M, return on equity of 8.18% and EBITDA of 768.13M. The company is also showing a price to book ratio of 0.62 and EPS of 27.16. Data also suggests 0.32% asset utilization. This indicates a very effective use of assets. On the debt side, Swiss has accumulated 7.52Bn in total debt, with debt to equity ratio of 0.76 and current ratio of 2.93, suggesting that the company is liquid and has the ability to pay its financial obligations on time.
The single biggest announcement by the company is its acquisition of the Cologne based Corpus Sireo. The purchase was acquired from two German savings banks, Stadtsparkasse Duesseldorf and Frankfurter Sparkasse, for the price of $281 million. The purchase is the largest asset management acquisition made by Swiss Life. Corpus Sireo employs 550 workers and manages about $21 billion of real estate assets, with revenue of about $210 million. The acquisition will see Swiss Life become the leading real estate manager not just in Switzerland and France, but now also in Germany. This is a major advantage for the company, the one that is likely to result in further price gains.
Technical Analysis Case
Swiss Life has presented an outstanding opportunity to enter the stock long. First of all, three moving averages: 20, 50 and 100 are clearly showing a continuation of the uptrend. MACD indicator has created an uptrend cross over, which usually offers great upside opportunity, as can be seen previously. Earnings announcements have also clearly supported the price surge. The biggest opportunity is offered by the price breakout that has been recently created. The price just recently broke the $230 level, where it has been in consolidation above $200 since March 2014. The breakout offers the best place to enter in terms of profit potential and risk. This is because the price usually tends to continue moving up after the breakout, especially when it is aided by fundamental data such as acquisition announcement. Technical analysis of the company shows a great opportunity that is still present.
The biggest risk faced by Swiss Life is its high earnings multiple. There is potential risk of the company being too high, where an unexpected event could have a powerful impact. The result could be a steady decline. However, the majority of evidence point towards a further advance. Swiss Life is mostly tailored to active investors that monitor their portfolio on a regular basis. The reason is due to the necessity of risk management. A safe point to set a stop loss would be below the $200 level, which will likely signal a complete reverse of the uptrend. Even though the likely share price target is Fr300, which can be achieved in the next year or two, the stock is recommended for medium term investors due to the necessity of active risk control.
Swiss Life Holding shows a very bright future. The company has registered a substantial improvement in the fundamental data that suggests a strong continuation of the trend. The acquisition has also shown another reason for the price to keep rising. Furthermore, technical analysis provides a fantastic opportunity to enter the stock. The risk is present, but mostly overshadowed by the company's outstanding performance. Swiss Life has still plenty in store for those who are interested in getting a piece of the insurance industry action.
Disclosure: The author is long SZLMY.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.