Zug Estates Holding SA is a small Swiss real estate company, born from the spin-off of the real estate activities of the industrial group Metall Zug in 2012.
It focuses on the Zug region and has a real estate portfolio valued at just over 1.2 billion, for a market capitalization of 920 million.
Zug Estates' portfolio is highly diversified, including residential properties, retail properties, offices, car parks and hotels & restaurants.
The vacancy rate is simply... the best among all listed real estate companies in Switzerland! It stood at 1.4% in September 2017, compared to 4.2% in summer 2016 and 1.8% at the end of 2016!
Zug Estates' current major project is the development of the "Suurstoffi" ("oxygen" in English) estate in Rotkreuz in the canton of Zug. It will be completed in 2020, but the first financial returns will already begin in 2018... Thanks to this project, the value of Zug Estates' real estate portfolio will increase from 1.3 to 1.7 billion, i.e. 30% more than today!
The dividend yield (1.3%) is very modest, but is explained by the fact that Zug Estates is currently investing heavily in its expansion rather than distributing all its profits to shareholders. This is why the payout ratio is very low (23%).
The dividend has the advantage of being tax-free for the time being, as it is paid from capital reserves. Finally, the dividend has so far been increased by around 10% each year since the stock market listing in 2012.
The % of equity of 57% is simply exceptional for a real estate company! The return on equity (ROE) is 6.5%, a decent value, but which should continue to improve in the coming years with the completion of its flagship project.
Neither the price-earnings ratio (PER) nor the price-to-book ratio (PBR) are really appropriate for valuing real estate stocks. The best measure is given by the NAV (net asset value).
At a current price of 1835, the premium over the NAV (which stands at around 1700 fr. per share) is 8%, which is very reasonable in comparison with other Swiss real estate values, and especially in view of the excellent expansion prospects.
Zug Estates is growing very quickly but with perfect risk control. When it was listed on the stock exchange in 2012 (shares issued at CHF 1,180), the real estate portfolio amounted to CHF 720 million. It grew to more than CHF 1.2 billion at the end of 2017 and is expected to reach CHF 1.7 billion in 2020!
Given the quality of the company, its high-flying balance sheet and the ongoing expansion of the real estate portfolio, a rating exceeding CHF 2,600 by 2020 seems realistic, if not inevitable.
In summary: a clear buy for the value and growth oriented investor who knows how to focus his attention beyond the dividend.
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Ah, here we are! 🙂
Thank you for this beautiful analysis of this beautiful society.
This looks interesting to me indeed. But I'll still wait for your other analyses :)
You're welcome! In my opinion, it's really the Swiss real estate stock that currently has the best potential. Too bad the dividend is so low.
For investors who focus on dividend yield, I am currently preparing two other analyses of real estate companies, but as explained above they do not have the same appreciation potential as Zug Estates.
Well, the dividend is certainly not huge, but as you say, it has good potential for appreciation. It doesn't bother me, quite the contrary.
Thank you for this analysis. I looked at this company more closely. It seems very interesting to me and falls within the framework of what I am looking for, at a price that seems acceptable to me today (rare in fact given the valuation of the markets, especially the shares of the companies that interest me). I am going to buy Zug Estates shares, with a medium/long term holding perspective.
Thank you Laurent Martin for your comment.
I think you have a very good approach: take inspiration from this analysis but then examine the company/stock more closely yourself, form your own opinion before making a purchase.
Welcome aboard Zug Estates, I believe that in the long run only good things can happen to you with this solid investment.