Analysis of BVZ Holding AG (BVZN:SWX)

I was talking to you a year ago of BVZ, a Swiss holding company active in the field of transport. This company is one of the very few whose headquarters is in Valais and which is listed on the Swiss stock exchange. I even believe that it is the only one in Upper Valais. If the company "BVZ" does not mean much to most people, this is not the case for its little red train which is known throughout the planet. The latter in fact climbs up to the Gornergrat, at an altitude of more than 3,000 m, opposite the most beautiful of all mountains: the Matterhorn. The "Gornergrat Bahn" is the oldest cogwheel railway in the world and the highest in Europe in the open air. It also takes its passengers to the highest hotel in Europe. We are therefore with BVZ in the field of superlatives, and we will see that it does not stop there.

Valuation & dividend

BVZ is among the very small circle of quality Swiss companies that are still trading at an affordable price. Its share price is trading at:

• 9.68 times current recurring earnings
• 16.49 times average recurring earnings
• 1.15 times book value
• 1.17 times tangible assets
• 1.13 times sales
• 14.15 times current free cash flow
• 11.99 times average free cash flow

The EBIT represents 7,83% of the enterprise value, but it is especially better from the point of view of the EBITDA with 14,46%. This confirms the very interesting valuation of the Upper Valais company.

If we focus on the dividend, we could believe on the contrary that the title is overvalued, since the yield only amounts to 1.52%. However, this figure is misleading because the company applies an extremely prudent dividend policy. The latter amounts to:

• 14.74% of current recurring profits
• 25.10% average recurring profits
• 21.54% of current free cash flow
• 18.25% of average free cash flow

BVZ therefore has a certain margin to continue not only to pay its dividend in the future, but above all to increase it. Distributions have been increasing for 10 years and the dividend has increased by almost 5% per year over the last five years.

Balance sheet & result

Just like the dividend, cash reserves, asset values and profits are growing over the long term, which proves the solidity of the holding company model. BVZ clearly succeeds in creating value for its shareholders and this is reflected in the share price which has tripled over the last five years, no less. Net profit even increased by 49% between 2017 and 2018. As my brother dividinde would say: "I'm left speechless by such class".

Les liquidités sont très confortables, avec un current ratio de 2.03 (en hausse) et un quick ratio de 1.76. La gross margin est affolante, avec 77.3% (mais en très lègère baisse). La marge nette et la marge de free cash flow sont bonnes avec 7.98%, respectivement 11.66%. Quant à la rentabilité ce n'est pas trop mal non plus avec un ROA de 5.01% (en hausse), un ROE de 11.66% et un CFROA de 10.03%.

Like many transport companies, particularly railway companies, BVZ is subject to significant capital expenditure, which has a negative impact on its debt. This is also the company's only negative point. The long-term debt ratio thus amounts to 44.85% of assets. It should be noted, however, that this ratio has been falling, as has the company's total debt, for several years. Despite this, it would still take BVZ more than eleven years to amortize the latter using its free cash flow. This is not really surprising, with debts representing 1.11 times equity.

With such a debt, one might fear that the company would tend to increase the number of its shares in circulation in the long term. But fortunately, the latter has been stable for several years, which avoids any dilution of its shareholders' assets.

Conclusion

Les origines de BVZ remontent au 19e siècle déjà. Avec le Cervin, l'entreprise bénéfice d'une rente de situation juste exceptionnelle. Ceci la met à l'abri de toute concurrence, d'autant qu'elle est mandatée par les services publics. Cette particularité explique assurément pourquoi la marge brute est aussi importante. Cette toute petite entreprise est donc une niche, abritée de tout ce qui se passe autour d'elle, ce qui est corroboré par un beta nul (attention néanmoins la volatility est assez élevée, avec 30%). D'ailleurs les analystes et les institutionnels s'en foutent totalement de BVZ, pour le plus grand bonheur des petits investisseurs que nous sommes.

The only real negative point is the debt. Moreover, the Z-Score (Altman) is worrying, with 1.77, which puts the company just in the red zone, i.e. companies that are potentially at risk of going bankrupt. Nevertheless, as we have seen, the company's fundamentals are very clearly improving, with in particular a debt ratio that has been falling for several years and in particular an F-Score (Piotroski) of 8 (out of 9 possible). Such a favorable score is not only quite rare, but it also confirms the positive direction of the company's finances. The Piotroski score, as a reminder, is a good indicator of the future performance of a stock.

In the end, I would say that BVZ, despite an attractive valuation and very good fundamentals, is a stock to watch if you don't already own it, and to keep if it is already part of your portfolio. The debt pushes us to remain vigilant, so no purchase or reinforcement of the position for the moment.