Action Compagnie Financiere Tradition SA (CFT:SWX): Analysis

The action Tradition Financial Company SA is traded on the Swiss Stock Exchange under the ticker CFT. The company is one of the three largest players in the world in the intermediation of financial and non-financial products on the OTC markets with a presence in the twenty largest financial centers worldwide. It has the status of number 1 in the sector in continental Europe. Its origins date back to 1959 and it has 2,400 employees.

Valuation of Compagnie Financiere Tradition SA shares

In the current context of overvaluation of shares, it is quite rare to come across stocks that are trading at even more or less correct levels. This is the case, however, for this mid cap whose price amounts to:

• 12 times current recurring earnings
• 14.8 times average recurring earnings
• 2.47 times tangible assets
• 2.2 times book value
• 0.94 times sales
• 9.96 times current free cash flow
• 22.3 times the average free cash flow

This is quite correct overall, even if the valuation relative to assets is still quite high, as well as relative to the free cash flow of the last five years. For financials, it is always interesting for the valuation to take into account the debt, using the enterprise value rather than its capitalization only. For the Compagnie Financiere Tradition SA share this gives us the following results:

• Current EV/FCF: 10.23
• Average EV/FCF: 23.7
• EBIT / EV: 9.61%
• EBITDA / EV: 12.93%

Here too, even taking into account the debt, it is frankly not so bad, except when we take into account the free cash flow of the last five years. It is the same phenomenon as already noted previously.

Dividend of the Compagnie Financiere Tradition SA share

This rather interesting valuation is reflected in the dividend, since its yield amounts to a very appreciable 4.37%. This is rare enough in these times to be worth noting. Above all, contrary to what is unfortunately often seen with such high yields, the dividend is here relatively well covered by the company's results. Indeed, they amount to:

• 52.32% of current profit
• 66.82% of average profit
• 42% of current free cash flow
• 97.38% of average free cash flow

Again, aside from this concern about the average free cash flow over the last five years, the situation is quite good, with a dividend that has a fairly good margin of safety and should therefore be able to continue to grow in the future. In the past, it has done so at a slow but sure pace of 2.4% per year on average.

Results

Just like the dividend, earnings and asset values are increasing over the long term. On the other hand, as already mentioned, liquidity is struggling more, with a decline in cash reserves over the last five years. This has not prevented the Compagnie Financiere Tradition SA share price from performing very well, with more than 60% in five years, even better than the benchmark index.

Despite the difficulty in generating cash flow in recent years, the current ratio is good and increasing, with 1.9 (same for the quick ratio). No worries therefore in paying the bills.

Profitability and profitability

CFT's leading position makes it a profitable and profitable company, since the net margin amounts to 7,86% and the free cash flow margin to nearly 10%. Profitability in relation to assets has increased significantly since the last financial year, going from 3,55% to 6,18%. At the CFROA level, this translates into 8,18% and 18,21% at the ROE level, helped nonetheless by debt.

Debt

As is customary for financial companies, CFT has a capital structure that is significantly influenced by debt. The long-term debt ratio to assets is still 25%, a fairly significant increase since the previous financial year (17%). The company would need nearly nine years to repay all of its debt (which represents 0.83 times equity) using its free cash flow, which is too long. This is obviously explained by the amount of debt, but also by the difficulty in generating cash flow over the long term.

Return for the shareholder

The issuance of net debt over the last five years has thus represented a negative return for the shareholder of -2.44% per year. Added to this is the issuance of new shares, which represented a negative return of -1.11% per year. In total, with the dividend, the average return for the shareholder has represented 0.68% per year on average. This puts the nice dividend yield we mentioned above into perspective.

Risks of the Compagnie Financiere Tradition SA action

CFT is a low volatility stock, with only 14.47% of relative standard deviation, which is appreciable. The beta is in line with the market norm, with 1.03. Piotroski's score is not bad at all, with 7 out of 9, which is due in particular to the improvement of several fundamentals compared to the previous year. This is therefore a financially solid company that is likely to continue to outperform in the future.

Conclusion

I have had CFT under my radar for quite a few years. It is a nice mid cap with a fair amount of quality. Although it managed to generate nice cash flow in the last financial year, in the past it was a bit more difficult. We will have to watch how this evolves in the future. We will also have to see how the debt behaves, because it has clearly negatively influenced the return for the shareholder in the past. Same for the issuance of new shares.

One of the advantages of CFT in my eyes is that it is liquid enough for the average Joe, but not enough for institutional investors. They are certainly present, but in small quantities.

So, to be continued.