WOOD Flash – CEZ: 2Q18 a missed opportunity to capitalise on spot prices
CEZ posted weak 2Q18 earnings yesterday. These are only partially explained by the revaluation of power and CO2 contracts (c.CZK 1.6bn) which, according to the company, should reverse over the next two quarters. Adjusting for this, EBITDA would have still missed consensus by 11% and net profit by 34%. Compared to our forecasts, CEZ had a weak quarter in terms of RES generation and, apparently, was unable to take advantage of high spot power prices in Traditional Generation. Cash generation was similarly poor - just CZK 3.9bn, a drop of 64% yoy - and FCF was negative CZK 1.4bn (although for 1H18 it still posted a positive CZK 10.8bn). Marking the earnings to current power prices, we would see the stock as fully valued (EV/EBITDA of 8.3x for 2019E and 7.4x for 2020E, at current power and CO2 prices) and, with the risk of a decision on new nuclear facing the company in the coming months, we would be wary of overpaying to get exposure to the current, albeit favourable, power and CO2 trends.CEZ Group is a dynamic, integrated electricity conglomerate based in the Czech Republic and with operations in a number of countries of Central and Southeastern Europe and Turkey. Co. is an international group consisting of nearly 120 companies, Czech and foreign. Co.'s primary activities involve the production and transmission of electricity through nuclear, coal-fired and hydro power stations; production and distribution of heat and processing of secondary products generated during the production of electricity and heat as well as coal mining. Co. has operating companies in Poland, Bulgaria, Romania, the Netherlands, Ireland, Germany, Hungary, Albania, Turkey, Serbia, and Slovakia.
WOOD & Company is the leading investment bank in Emerging Europe. Founded in 1991 and head-quartered in Prague, our footprint spans the region and touches investors around the globe.
A pioneer in Emerging Europe, WOOD executed many of the first CEE equity trades and landmark investment banking transactions. Our electronic trading platform was the first in the region, and remains the best. We are continually expanding our relevance and reach in these ever-evolving markets.
Our equity market share reflects our stature: 7% in Warsaw, 20% in Bucharest, 16% in Hungary, 40% in Prague and 5% in Vienna. Our distribution is unparalleled, with the largest salesforce in the region, servicing a uniquely diverse investor base.
We couple local expertise with a truly international perspective. With offices on the ground in the region, and in key financial hubs such as London and Milano, we are never far from our clients and we remain at the forefront of what’s afoot in the CEE emerging and frontier landscape.
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