Swisscom (SCMN:VTX) Analysis

No real need for introduction Swisscom. It is by far the largest Swiss telecommunications company, privatized from the former federal PTT. The Swiss Confederation is still the majority shareholder. Swisscom provides telecommunications services not only in Switzerland, but also in Italy, via its company Fastweb. It has 20,000 employees.

Let's say it bluntly and straight away: Swisscom shares are currently very expensive compared to what we can expect from them. Those who have followed my latest analyses on certain Japanese stocks will immediately realize the gigantic gulf between the two.

SCMN is trading at 16.9 times recurring earnings. So far, so good. On the American and European markets, we currently find much worse. On the other hand, it is trading at 117 times tangible book value, 2.32 times sales and 18.7 times free cash flow. We are very far from the figures we had on Japanese stocks...

If we look at the dividend, at first glance, it might seem much more interesting, with a yield of 4.2%. However, such "generosity" is explained by a distribution ratio of 71.3%, which leaves little room for a future increase in the dividend and also preterites the company's investment intentions in the development of its business. Worse, a drop in profits could at least partially threaten the dividend. If we look back a little, we can see that it is no longer increasing, while earnings per share are eroding. The same goes for cash reserves and asset values... they are falling in the long term. In short, it doesn't smell very good.

Cash reserves are low, with a current ratio of only 0.89 (down) and a reduced liquidity ratio of only 0.85. Fortunately it is "Swisscom" because with such figures we would fear defaults at lesser-known companies that do not have the government in the background. On the gross margin side it is much better, since it is very large and increasing, at 83%. At the same time, if a company of this type, with still a more or less monopolistic situation does not have a large margin (net margin 14%), that would worry me. The return on assets is also attractive, with 7.5% (up), for a return on equity of 14.4%. Here too these are very good figures and can be explained by the activity and the particular situation of the Swiss company.

On the debt side, however, things are getting worse, with a long-term debt ratio to assets of 32.9%. Even if the debt tends to decrease slightly in the long term, it remains high. It would take Swisscom almost six years to pay off all its debt using all of its free cash flow...

It should also be noted that Swisscom has not sought to finance itself by increasing its capital, the number of shares in circulation having not changed for several years, which is positive.

Swisscom is certainly a real institution in Switzerland, still enjoying a pseudo monopoly, with the government always in the background. However, even if this particular situation helps it in terms of margin and profitability, other fundamentals of the company are not optimal. This is all the more true if we look at them in relation to the price that must be paid to acquire the share.

So I have just parted ways with Swisscom.