Czech Equity Daily: 22/10/08; Zentiva, CME, ECM, politics

PX 888 (up 2.7% d/d); volume 3,042 mn CZK (160 mn USD)

Market comment

The PX Index rose 2.74% d/d yesterday, driven by Komercni banka (+7.24%) and CEZ (+2.67%). KB regained part of the losses it suffered last week as investors feel calming down of situation on the inter-bank money market. NWR was under strong selling pressure in London where hedge funds were selling off their positions, whereas in Prague there was fairly strong demand. NWR fell to 92 CZK in the morning, then jumped to 110 CZK, but fell to 100 CZK towards the close in Prague in reaction to trading on U.S. markets. CEZ traded as high as 830 CZK, but then fell under 800 CZK as U.S. markets opened negatively. In total, stocks worth 3.05 bn CZK changed hands on the Prague bourse.

Zentiva: Neutral (Analyst: Milan Vanicek)

Zentiva will release its sales figures for the 3Q/9M 2008 at noon today. We expect also some news regarding the main markets (Czech Republic, Romania and Turkey). We estimate total sales for the 3Q08 to show a 0.4% decline to 4,314 mn CZK (13.3 bn CZK for 9M08, +19.6% y/y). Despite the absence of negative one-off items that were posted in 3Q07, the unfavourable FX development and the still challenging situation on the Czech market erased any positive y/y performance. Detailed figures are to be released on 10 November.

We expect that the sales release will have no or only very limited effect on the share price, due to the ongoing tender offer by Sanofi-Aventis for 1,150 CZK that is pending till 28 November.

cons. in mn CZK

e3Q08

y/y

e9M08

y/y

Sales

4,314

-0.4%

13,304

+19.6%

Source: Zentiva and ATLANTIK FT

CME: Neutral/Positive (Analyst: Patrick Vyroubal)

CME announced that on 17 October exercised a call option to buy remaining 10% stake in Studio 1+1 (in Ukraine) for a consideration of 109.1 mn USD (2.5 USD or 49 CZK per share). As the conditions of the call option were known to the market before, we do not expect any significant reaction. CME has now full 100% control over Studio 1+1 and in the nearest time it will continue in already started restructuring of operations. This should lead to gaining the leading position on the market and to improve operating performance, which will require increased opex and capex. Ukraine with 47 mn inhabitants is expected to have the largest potential for CME in future.

ECM: Neutral (Analyst: Patrick Vyroubal)

ECM yesterday announced that its Board will meet shortly to discuss the buyout bid by ECM Group for 303 CZK per share. Mr. Janku is the Chairman of ECM and also holds a 100% stake in ECM Group. ECM advises its shareholders not to take any action with regard to the bid in the meantime. Since the offer price is much below NAV, we do not recommend to accept the offer and advise to wait for further developments.

Lower House failed to approve budget bill (Analyst: Petr Sklenar)

The Lower House failed to approve the 2009 budget draft in the first reading on Tuesday. The government has proposed the budget with the deficit of 39 bn CZK (1.0% of GDP) - expenditures of 1.15 bn, revenues of 1.11 bn. The Lower House did not approve the budget draft for the first time in history. Experts are to explain soon how to solve the unprecedented situation.

No confidence vote in govt (Analyst: Petr Sklenar)

The Lower House will take vote of no confidence in government today. The opposition needs 101 votes to express no confidence in the government. We expect the opposition will fail at no confidence vote.