Switzerland’s Hidden Investment Gems

Investing in Switzerland – at Moneyweek.co.uk - the best of the week's international financial media.

Join me on a quick tour around the Bernese Oberland, the mountainous area in the canton of Berne that encompasses some of Switzerland's most prestigious resorts, notably Adelboden, Grindelwald, Gstaad and Wengen. You'll see shortly why this region may just hold a number of lucrative investment opportunities. It is also a lake region, surrounding the large and chic Interlaken resort, which marks the departure towards the summits of these majestic and at times mystic mountains. The Eiger North Face is the most famous of them, and to this day even experienced mountaineers shudder when thinking of the prospect of climbing the near-vertical, 2,000 meter rock passage. Thousands have conquered this mountain by now, but there have been more deaths than on any other mountain.

Interlaken may be a mere village in terms of its population, but when wandering down the streets of this picturesque resort town you'll overhear conversations not only in German, English and French, but also in Mandarin, Hindi, Malaysian, and Arabic. There is a distinct cosmopolitan feel about the place. And tourists are also well-advised to take a trip in the green-yellow trains of the Wengernalpenbahn, a local railway company. The train ride up the 2,061 meters is among the most scenic train journeys anywhere in the world, and all you'll need to do is simply sit back and enjoy the result of Swiss engineering ingenuity. Building these mountainside trains bordered on a miracle at the time when they were first taken into operation, back in the late 19th century.

The Wengernalpenbahn belongs to Jungfraubahn Holding (JFN.Zuerich), a listed holding firm for railway companies. Nearly every single local railway of the tourist region belongs to Jungfraubahn the firm now has a quasi-monopoly after gobbling up smaller local competitors.

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Instead of rambling about the financial details of this firm, simply take a look at the gallery of photos shot from what is the crown jewel of the firm's railway possessions (https://www.jungfraubahnen.ch/english/pages/RE/RE_JnSg5.htm) the railway station atop the Jungfraujoch, at a height of 3,454 meter above sea level, is quite suitably called the Top of Europe'. You can see why millions of tourists are flocking to the region, with most of them ending up paying some money into the pockets of Jungfraubahn or its subsidiaries.

Since early 2004 the share price of Jungfraubahn has been climbing almost as steeply as the Eiger North Face. Prices for the train tickets are steep. Just the journey from Kleine Scheidegg at 2,061 meters to the Jungfraujoch at 3,454 meters will set you back 104 Swiss Francs (£46).

Most of the railway equipment has long been written off, and investments into keeping the trains and tracks in pristine condition are quickly amortized. The company has a vast cashflow surplus. Because of the constant cash flow, the company also owns plentiful real estate, often in the best locations of the region. So despite the share price having risen a lot already, the share is still undervalued when comparing it to its hidden reserves.

Remember, I haven't studied this stock in detail and I'm not recommending you buy it. But it gives you a good taster of the scope for investment potential in the country...

And here's a good lesson to learn from the oil sheiks who have invested in Switzerland: Grandhotel Victoria Jungfrau (VIJN.Zuerich) owns and operates what is simply the best hotel in all of the country.

The Grand Hotels newly refurbished Spa has won many an award recently, and the rooms on the front of the hotel enjoy the very best view of the Jungfrau mountain. It is no surprise that visitors to the region are happily shelling out CHF760 (£338) for the cheapest room, though some have found a way to get into one of the grand rooms at a much cheaper rate: if you own shares in the company, you get a 20% reduction when booking a room.

Because a number of Swiss investors have bought shares in the group in order to make the most of the discount, the share price is now largely independent from the company's actual value. At a share price of CHF225, the p/e is a staggering 100 and even the value of the real estate doesn't justify the high price.

And guess just who happens to own a large chunk of the hotel company? The Kuwait Investment Office: the oil sheiks bought a 23.8% stake in Grand Hotel Victoria Jungfrau back in 1978. It's been a splendid investment ever since.

Whether the sheiks are using the discounted hotel rate, too, I dare not say. But in any case, there is something to be learned from the world's super-rich. The Kuwaitis bought into the hotel company when it was still undiscovered and little talked-about and they therefore got in at a bargain price.

Till next time

Beat Erni in The Profit Hunter Files

P.S.: Beat Erni is well-connected among the gnomes of Zurich, and he is constantly following the tracks of the world's wealthy in order to come up with interesting, and often unique, investment ideas. To receive more from Beat and other profit-hunters in the free weekly e-letter, The Profit Hunter Files, click here: