CEZ: Green Deal and grievances (downgraded to SELL)
We downgrade CEZ to SELL (from Hold), with a new 12M price target (PT) of CZK 823/share, or downside of 19%. CEZ is beginning another generation capex cycle, which (unlike the planned, but so-far modest, spending for RES) is for gas to coal switching, so is largely unavoidable. Taking a more sober assessment of new RES capacities, power volumes will be declining as, assuming the lignite phase out goes as planned, the new capex will largely only replicate the existing capacity, particularly that primarily aimed at heat production. Finally, higher capex is likely to weigh on CEZ’s dividend payout capacity, in our view. We note that the increase in the payout strategy came after the last capex cycle, which ended in 2017; while, in 2018-22, CEZ could afford payouts of 100% or more, we see 80% as the new ceiling, and 60% as the rule for earnings from 2026E until the early-2030Es.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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