Jungfraubahn Holding AG

A railroad to the Top of Europe

Key Data

• Ticker Symbol: $JNF.SW

• Price: 158 CHF

• Market Cap: $924 Million

• Forward Dividend: $3.60

• Dividend Yield: 2.2%

• Payout Ratio: 48%

• Areas of operation: Switzerland

• Sector: Industrials - Railroads / Consumer Cyclicals - Hotels & Entertainment Services

Business

JungfrauBahn Holding Ag is a Swiss holding company dedicated primarily to operating a number of railways, cableways, restaurants, and other leisure and transportation services in the Jungfrau Mountain and surrounding valleys.

With over 120 years of history, this holding company, through its subsidiaries, is a leading Swiss tourism business and the largest mountain railway group, that has in more recent years expanded into an integrated recreation and service company.

As a holding company, Jungfraubahn holding AG operates through 11 separate subsidiaries, the majority of which are wholly owned, with a handful being operated as joint ventures with its partners.

Each subsidiary deals with a separate line of business, and together they operate an integrated recreation and service company:

• Jungfraubahnen Management AG

  • A joint venture with the Berner Oberland-Bahnen AG that deals with managing the Jungfrau Railway Group and other affiliated companies in the Jungfrrau Ski Region, including the Berner Overland-Bahnen AG. This operating consortium benefits from synergies of scale and in particular creates a scenario where a single collective and integrated offer can be provided to clients, that includes other railways in the region.

• Jungfraubahn AG

  • A wholly owned subsidiary that operates the world-famous cogwheel railway from Kleine Scheidegg to Jungfrau-joch – Top of Europe. Moreover, it operates the Top of Europe shops, which offer a wide range of souvenirs. As of 1 January 2023, it handed over this business area to Jungfrau Shopping AG. The restaurants on Jungfrau-joch and Eigergletscher have been rented to the affiliate Jungfrau Gastronomie AG. The hydroelectric power plant in Lütschental, which is managed by Jungfraubahn AG, produces electricity and performs services in the field of energy supply.

• Wengernalpbahn AG

  • A wholly owned subsidiary responsible for operating the Wengeralpbahn, the longest cogwheel railway in the world which serves as a gateway to the excursion and winter sports area of Kleine Scheidegg. Additionally the railway supplies the car-free residential and holiday resort of Wengen, and owns the winter sports facilities around Kleine Scheidegg, including chairlifts, gondola, etc…

• Firstbahn AG

  • A wholly owned subsidiary that operates the gondola lift from Grindelwald to First – Top of Adventure. With its five winter sports facilities, half-pipe and the Grindelwald-First Snowpark, the sunniest ski area of the Jungfrau region is popular in winter with locals, freestylers and holidaymakers from all over the world. Firstbahn AG rents out the mountain house with catering offerings and a tour-ist accommodation centre.

• Parkhaus Lauterbrunnen AG

  • A wholly owned subsidiary that operates two multi-storey car parks. Thanks to its location at the railway station, the Lauterbrunnen multi-storey car park with its 940 parking spaces and bus terminal is the central transfer point between family-owned transport and the car-free resorts of Mürren and Wengen.

• Jungfrau Shopping AG

  • A wholly owned subsidiary that beginning in 2023 it will operate the business area of the Top of Europe shops from Jungfraubahn AG.

• Jungfrau Gastronomie AG

  • A wholly owned subsidiary that operates catering businesses along the main traffic axis to the Jungfraujoch – Top of Europe.The production kitchen and all restaurants are rented by Jungfrau Gastronomie AG via its sister companies and run under central management based on a holistic concept.

• Bergbahn Lauterbrunnen-Mürren AG

  • A 95% owned subsidiary that operates an aerial cableway from Lauterbrunnen to Grütschalp and an adhesion railway from Grütschalp to Mürren. The cableway and railway are part of the public transport network ordered by the Canton of Berne and financed by compensation. They connect the car-free health resort of Mürren, the Winteregg – Top of Family excursion destination and the Mürren-Schilthorn winter sports area. On Winteregg, the company also leases a restaurant of the same name.

• Harderbahn AG

  • An 89% owned subsidiary that operates a cable car from Interlaken to the local mountain Harder Kulm – Top of Interlaken.

• Grindelwald Grund Infrastruktur AG

  • An 80% owned subsidiary that is the owner of infrastructure built for the V-Cableway project in Grindel-wald Grund (terminal and multi-storey car park). It maintains, manages and rents out these facilities.  In addi-tion, it has a mandate to provide services for Gondelbahn Grindelwald-Männlichen AG and Wengernalpbahn AG. It is also responsible for the care of the station facilities at the terminal of Berner Oberland-Bahnen AG and for controlling private traffic with respect to parking at Grindelwald Grund.

• Sphinx AG Jungfraujoch

  • A 57% owned subsidiary that owns the plot with the sphinx building and the passenger lift in this building. It intends to have this property used for research purposes by High Altitude Research Station Jung-fraujoch and for tourism purposes by Jungfraubahn AG.

Taken together the Jungfrau Railway Group has been able to develop itself from a pure transportation company, into a fully integrated leisure and service company.

The one-stop combination of offerings enables attractive pricing and services/products offered. In this way, the integrated company can make the most of the potential of its customer base. 

Moreover, the company can independently ensure customer satisfaction and optimize customer benefits more effectively on the basis of a defined quality standard.

The brand “Jungfrau – Top of Europe” forms the core of the brand strategy. This brand has developed over generations, is known around the globe, and enjoys an excellent reputation in connection with its Swissness.

As such, more than a simple transportation company, or a local tourist operator, the Jungfrau brand is strong, and has a global reach allowing mountain enthusiasts to become aware of, and subsequently visit the region.

In many ways, the brand is self-sustaining, with visitors regularly sharing their experience on social media, providing a separate, ongoing, and free source of direct marketing that directly converts into additional visitors and repeat visits.

Finally, on strategic and financial goals, the company operates in a conservative manner, with low levels of debt on their balance sheet. This makes some of the usual valuation metrics difficult to justify, particularly given the highly capital intensive nature of their business.

For example, their returns on Equity are quite small, largely under 6%, mostly due to the lack of debt.

The enormous capital investments required, and subsequent depreciation expense, makes the business unappealing at first, but a deeper look indicates that this expense has built a significant moat that is insurmountable to any new competitors in the region.

On a fundamental basis, the company owns and operates railways, cableways, and associated properties in a premium and highly visible and well known tourist hub. There is essentially zero chance of the business being under threat by a direct competitor that wants to come in and build similar infrastructure in the region.

Not only would the initial capital expenditures to begin the project be extremely high, but in many cases such infrastructure would not even be legal to build in the first place. 

And even if someone were to come around and build it, it would take decades to have such infrastructure up and running, and all for what is a relatively low return on assets, that would likely only get lower when competing with Jungfraubahn holdings.

There is little chance of such a competitor succeeding, even if they had 20 years and the full support of the local governments to do it.

The greatest risk here is not outside competition, but sovereign risk.

As an effective monopoly in the region, the chances that the swiss government will interfere may increase, but at the same time, the existence of this risk, and the deep integration of the company in the local economy make any such interference risky given the potential impacts on tourism.

In many ways, so long as the minority of local residents are given a good deal by the company, it's likely that the political will to crackdown on this tourism monopoly will not be realized. 

And even if such a political will to break up the company comes about… Switzerland is a country with fairly reliable rule of law, and so any nationalization of the business would likely come with some amount of compensation.

Management

The CEO of the company is Urs Kessler, who has been with the company for 36 years, as its CEO for 15 years, and has driven some of its major expansion initiatives.

However Mr. Kessler will be stepping down in June 2025, and the search for a new CEO is currently ongoing.

“I wanted the company to be debt-free again, which has been the case since the end of 2022. What is more, we have outperformed the highest half-yearly profit to date from the record year of 2019. Thus, I will be able to hand over my operational leadership responsibilities with a clear conscience in June 2025, and there is enough time left to arrange for an orderly succession.”

By all accounts Mr. Kessler has been a good CEO for the business, and I will be sad to see him go. Nonetheless I have full confidence that the company will be able to find a suitable successor for him.

Key Risks and Opportunities

Risks:

• Substantial amount of fixed costs and capital requirements

• Highly dependent on global tourism

• Potentially at risk of government intervention.

Opportunities:

• Substantial branding power

• Extremely pricing and monopoly power for substantial parts of the business

• Impossible to replicate and compete with locally

Financial Data:

Shareholder Returns:

• Dividends

  • The company pays a 3.60 CHF dividend.

  • The company paused dividends during the pandemic, but has resumed them at a higher level since

  • The company has a policy of paying out between 35% and 60% of earnings

• Share Buybacks

  • The company conducts share buybacks but only in small amounts

Income Statement:

• Revenue Growth Rate

  • Long Term - 4% 

  • 3 Year - 70%

  • Revenues are reasonably solid and stable, with the exception of the pandemic which meaningfully impacted revenues (resulting in the 70% growth rate over the past 3 years).

• Pre-Tax Profit Margins

  • Long Term - 9%

  • These values are negatively impacted by the pandemic. Normalized margins are around 20%

• Return on Assets

  • Last Year - 5%

  • Very low returns on assets due to enormous amounts of capital requirements. Railroads aren’t cheap!

• EPS Growth Rate

  • Long Term - 6%

  • Have net losses in recent years

• Cyclicality

  • Non-Cyclical

  • Except maybe as a global economy cyclicality? Not traditional cyclicality at least.

Cash Flow Statement:

• Operational Cash Flow Growth Rate

  • Long Term - 6%

  • Highly dependent on number of visitors

• Investing Cash Flows Growth Rate

  • There have been recent major CAPEX expenses in expanding Cableways

• Financing Cash Flows Growth Rate

  • Debt has been fully repaid recently

Balance Sheet:

• Assets:

  • Main Assets are the railways and other infrastructure that form the core of the company's offerings.

  • Most of the assets are tangible fixed assets with little liquidity, but little chance of disruption or competition

• Liabilities:

  • The main liabilities are operating liabilities, and small amounts of non-current financial liabilities (interest free loans from government that might not require repayment) and non-current provisions (mostly disassembly and disposal costs, and pension obligations)

• Debt:

  • No substantial debt

  • No Debt Cliffs

Valuation:

Key Metrics:

Bullish

• Discounted Earnings - 127 CHF 

• Discounted Cash Flow - 102 CHF

• Margin to PE - 223 CHF

• Market Multiple - 156 CHF

• Cash Multiple - 156 CHF

• NCAV - 112 CHF

Bearish

• Discounted Earnings - 27 CHF

• Discounted Cash Flow - 21 CHF

• Margin to PE - 14 CHF

• Market Multiple - 0 CHF

• Cash Multiple - 0 CHF

• NCAV - 0 CHF

Average

• Discounted Earnings - 48 CHF

• Discounted Cash Flow - 38 CHF

• Margin to PE - 10 CHF

• Market Multiple - 29 CHF

• Cash Multiple - 0 CHF

• NCAV - 0 CHF

Expected Value:

To be frank I don’t think any of my standard valuation metrics meaningfully apply to this company, and so I made a more detailed discounted earnings model that took into consideration the number of visitors, the revenue per visitor, margins, etc…

Ultimately this is a business where revenues and earnings are directly related to the number of visitors that come, and the propensity of those visitors to spend money, and so it makes sense to look into that, rather than these standard models.

In 2022 the company saw around 650K visitors, still down from the 1 million visitors in 2019, but the last quarter of the year was already in line with the 2019 numbers, so I think it’s fairly reasonable to assume that visitors will go back up to 1 million shortly, and possibly even higher given the new offerings available.

At a per visitor transport revenue of 210 CHF, and with 1.2 million visitors, I would expect that in 2025 the company will earn around 73 million CHF in earnings, or around 12.66 CHF per share.

Given a 8% discount rate, that gives me a per share valuation of 158 CHF, which is around what the company is trading.

If I consider the monopoly-like structure of the business, the relatively stable low inflation currency, the significant branding power, and the irreplaceability of the infrastructure the business owns, It’s easy to be willing to provide a lower discount rate than the usual 11% I use.

I think the company is actually fairly valued right now, when considering its earnings-generating potential, and the high value assets it owns.

The question is really, are my visitor growth assumptions accurate?

Investment Thesis

• This is a solid monopoly like business, with little in the way of local competition

• The company has some serious branding and pricing power it can use to generate substantial revenues

• It is vulnerable to large scale international shifts in tourism

• The valuation is more or less what I would expect with a quality company with substantial pricing power.

• I like the high profit margins, and the conservative balance sheet.

Decision

Current Stance: HOLD

I don’t currently own $JNF.SW, but if I did I would be a happy owner. Ultimately the company is in no danger of bankruptcy, it has a clear path forward to raising revenues and it has demonstrated a commitment to returning capital to shareholders.

While there may be better options out there, the growth in the business, alongside the deep moat means that selling out of the company wouldn’t be a good idea.

The company is fairly valued, and due to the lack of bandwidth I currently have, I’m not in a position to open a new position. I may do so in the future if the share price falls further, or if my index allocation reaches my desired level.

Do you have a different view on the company? Are you buying, selling or holding?

Let me know down below!