CEZ: Power boost (BUY - transfer of coverage)
In this update, we transfer coverage of CEZ, with a new 12M price target (PT) of CZK 889/share (from CZK 557), which offers 19% upside, and a BUY rating. Our increased valuation is driven predominantly by higher power prices and the improving profitability of the generation segment. In 2022E, we estimate that CEZ’s achieved selling price could exceed EUR 66/MWh (+EUR 14/MWh yoy), which we believe is not appreciated by the market currently, with the share price underperforming the recent power price rally. We expect such an increase to be driven by CEZ leaving a c.10% open position to be sold in 2022E, at much higher price levels vs. its 2022E hedged price. CEZ trades at our 2022-23E EV/EBITDA of c.7.3x, in line with its peer group, but below its 3Y historical average of 7.9x. We believe the company now deserves higher multiples, given its updated plan to decarbonise its generation portfolio, while distributing a very generous dividend (a 6.6% yield on average in2021-23E).
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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