Analysis by Vaudoise Assurances (VAHN)

Founded in 1895, Vaudoise Assurances Holding SA is a cooperative company whose majority of share capital (67.6%) is held by Mutuelle Vaudoise. This cooperative status is broadly comparable to that of Raiffeisen or Migros.

This mutual structure allows in particular the redistribution of a portion of the profits to the insured in the form of premium retrocession, thus contributing to their loyalty. In addition, this attachment to the Mutuelle Vaudoise allows to pursue a development policy oriented towards the long term and to evolve in complete independence, without being subject to pressure from the shareholders.

This advantage can of course also turn into a disadvantage if shareholders want to go against the direction of management, but do not have the necessary weight to make themselves heard.

The registered shares A are fully held by Mutuelle Vaudoise and benefit from a privileged voting right (totaling 91.2% of voting rights). Only the registered shares B are listed on the Swiss stock exchange.

Today, the company is (fortunately) only active on the Swiss market. In the 1990s, it decided to expand into Italy and Spain, a disastrous adventure that ended in a huge financial fiasco and huge losses.

The Vaudois group is active in life insurance (only 18% of premiums collected) and especially non-life insurance (50% wealth insurance, 32% non-life personal insurance). In non-life business, the motor vehicle branch is the largest in the group's portfolio.

Voted best employer for the second time by Bilan magazine, Vaudoise is a small insurance company with a market capitalization of around 1.4 billion. Present throughout Switzerland with its network of 113 agencies and 1,621 employees, the company has been particularly focused on expansion beyond the Sarine for several years. The potential there is still very significant, since currently only 37% of premiums are collected in German-speaking Switzerland.

With the acquisition of Animalia in June 2016, Vaudoise is now also active in health and accident coverage for cats and dogs.

Vaudoise is one of the most solid insurance companies on the market: it has a very comfortable level of equity corresponding to approximately three times the legal level required by the Swiss Solvency Test (SST).

Profitability is not left behind, since at the end of 2020 the non-life combined ratio (ratio between costs/damages and premiums) stood at 92.6%. The return on equity reached 5.3% in 2020, a decent profitability for an insurance company.

As for net profit, it has certainly decreased by almost 8% compared to 2019, but it is an extremely solid performance for such a complicated year marked by the ravages of the Coronavirus. For comparison, Bâloise's profit fell by 37% and Helvetia's by 48% over the same period!

Vaudoise shares are trading at a very reasonable book value of 0.71, a real bargain in this bull market (perhaps we should rather talk about a "bubble" market 😉 ). In comparison, Helvetia and Bâloise have a PBR greater than 1. The same is true in relation to profits, since the 2021 PER is estimated at 11, a value close to its historical average and much lower than that of its direct competitors.

Vaudoise is clearly a defensive stock of the "value" type and not "growth", cheap but with moderate growth prospects. The low free float of a third and the dividend yield less generous than that of the others Swiss insurers also contribute to explaining this modest valuation.

And yet, even if the dividend pales in comparison to that of its competitors, it still reaches an attractive value of 3.3%. In addition, its increase over time is also interesting: the dividend has more than doubled in 10 years, going from 7 fr in 2010 to 16 fr in 2020.

This year, the dividend was increased by 6.7% despite the drop in net profit. This is a very positive signal for shareholders, which is explained on the one hand by the financial strength of the company and a distribution ratio very reasonable, and which also indicates the group's optimism regarding its post-Corona profit prospects.

The dividend is safe and still has good appreciation potential. Indeed, the payout ratio of 38% is very conservative and the group aims to distribute between 30 and 50% of its net profit each year. The year 2021 is looking better than the previous one and a new dividend increase therefore seems almost programmed.

Unlike most other Swiss insurance companies, Vaudoise Assurances shares have not recovered much after the price drop due to the coronavirus crisis and are still trading 20% below their level of a year ago. In my opinion, this is mainly due to the lower dividend than other insurers, the low liquidity of the stock and the moderate growth prospects.

However, it is a well-run, solid company that has proven the resilience of its business model in the difficult context of the Covid-19 pandemic.

The stock price exploded from 2003 to 2015 and has been in a consolidation phase for about 6 years. I think it is only a matter of time before it attacks 600 francs again. At the current price of 485 francs, the stock is cheap and I recommend buying it.