Analysis of BVZ Holding AG (BVZN:SWX)

BVZ Holding AG is a Swiss-based holding company whose core business is the operation of railways in the cantons of Valais, Uri and Grisons. The core of the group is the railway companies. These include Matterhorn Gotthard Bahn and the two tourism brands, Gornergrat Bahn and Glacier Express. Matterhorn Gotthard Bahn provides public transport services on behalf of the Confederation and the cantons of Valais, Uri and Grisons. The network extends from the Zermatt Valley to the Ursen and Surselva, via Visp, Brig and the Goms Valley. Matterhorn Gotthard Bahn also includes the car loading platform at Furka and Oberalp, as well as the transport of goods to Zermatt. The real estate sector, assigned to BVZ Asset Management AG, provides real estate services of a residential and commercial nature. Although the holding company was only founded in 1999, the railways owned by BVZ have a very long history. The brands "Matterhorn Gotthard Bahn" and "Gornergrat Bahn" date back to the 19th century. The holding company currently has 633 employees.

Valorization

BVZ is trading at a fair price, at 18.5 times recurring earnings, 1.2 times tangible assets, 1.17 times sales and 11.5 times free cash flow. From a dividend perspective, it is a little less good on the surface, since the yield only amounts to 1.5%. However, this is explained by a payout ratio of only 27.5% compared to earnings, and especially 17.14% compared to free cash flow. The Valais company therefore has a substantial margin of safety and growth regarding its dividend. It has not held back from increasing it in the past, with an average annual growth of 4.8% over the last five years.

Balance sheet & result

Just like the dividend, profits and cash reserves are growing over the long term. Even if the value of the assets tends to decrease slightly, BVZ manages to create value for its owners, which is reflected in the share price, which has doubled over the last three years.

Cash reserves are quite good, with a current ratio of 1.44 (down) and a quick ratio of 1.22. This is certainly not optimal, but it still allows the bills to be paid.

The gross margin is very high and rising, at 77.5%. That smells like a monopoly! The net margin is correct, at 7.55%, with an even higher free cash flow margin of 10.14%. Profitability is average, however, with an ROA of 2.34%, an ROE of 8% and a return on cash flow from assets of 7.53%.

The long-term debt-to-asset ratio is very high, although slightly down, at 48.9%. Total debt has been steadily falling for many years, but it would still take BVZ 14 years to amortize it using its free cash flow. That is obviously a very long time!

On the positive side, the number of shares outstanding has been stable for many years, which avoids any dilution of shareholders' assets.

Conclusion

BVZ is a company with a long history, benefiting from an exceptional situational income: the Matterhorn. It is therefore de facto sheltered from all competition. It is also mandated in its missions by the public authorities. BVZ is a niche, sheltered from everything that happens around it, which is corroborated by a downright zero beta. It is also little followed by analysts and institutions. Its only weak point is its very high debt ratio.

Despite the strong price increase in recent years, I believe that the stock is still very slightly underestimated. It is probably no longer a buying opportunity, at least not a strong buy, but it is clearly a stock to keep in your portfolio or to watch with a view to buying in the event of a price drop.