Credit Suisse reports share buybacks’ rise in Swiss market

Credit Suisse has released its annual Swiss Credit Handbook in which the firm reports credit assessments of the most important Swiss issuers in the Swiss-franc capital market.

Some 108 issuers (corporates, utilities, cantons and cities) have been analysed by the global credit research team of Credit Suisse. Globally companies assessed have achieved growth in their revenues “thanks to higher volumes and better prices”.

However, the strong Swiss franc has offset local corporates’ revenue growth.

Credit Suisse’s report points out that only half of the firms it assessed improved their margins in 2015, despite cost savings and efficiency programs. The other half faced a drop.

“Not only were drops in margins more significant than increases, we also believe that the increases were also mainly supported by cost-saving initiatives rather than underlying growth. We thus believe the risk pendulum could be about to swing back the other way as lower profitability will be reflected in cash and credit metrics.

“Nevertheless, FY 2015 margins still outperformed the 7-year average reading, illustrating that profit margins still remain high historically,” Credit Suisse underlines.

The firm suggests that weaker margins have been mainly generated by capital goods and building materials companies and/or those suffering most from the strong Swiss franc and European competition.

On top of slightly weaker free cash flows, dividends rose or were stable, Credit Suisse reports, seeing a 60% rise year-on-year in share buybacks (CHF 13.7 bn over the 108 issuers).

Share buybacks of the Swiss issuers analysed by the company have increased by 429% compared to 2013.

“That said, these high shareholder payments are supported by currently very attractive refinancing conditions and central bank support for the fixed income asset classes, offering good access to capital markets within the investment grade universe. Hence some corporates might even take a rating downgrade into consideration when initiating share buybacks and/or acquisitions while refinancing conditions remain attractive,” Credit Suisse comments.

The firm adds that Swiss corporates enjoyed very solid liquidity with available cash on hand and unused credit lines in 2015.

Some 80% of the companies covered have been given a stable rating outlook. Nine firms have been downgraded since 2015, mainly in the Swiss utility sector, and one upgraded.

Another finding of Credit Suisse’s handbook is that issuers from the Swiss public sector still remain of high quality, having been given an overall stable rating.

Adrien Paredes-Vanheule
Adrien Paredes-Vanheule is deputy editor and French-Speaking Europe Correspondent for InvestmentEurope, covering France, Belgium, Geneva and Monaco. Prior to joining InvestmentEurope, he spent almost five years writing for various publications in Monaco, primarily as a criminal and financial court reporter. Before that, he worked for newspapers and radio stations in France, in particular in Lyon.

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