Czech Equity Daily: 10/05/10; CEZ, TEF O2, ECM, intervention by central banks

Index PX: 1,147 points (down 2.8% d/d); volume: CZK 4,208m (USD 206m)

Breaking news

According to Czech Press Agency, the EU finance ministers (Ecofin) today in Brussels agreed on a rescue package worth 500 billion euros, which is to prevent the spread of the Greek debt crisis in other countries. The whole rescue mechanism should apply the following three years. Eurozone countries could provide up to 440 billion euros in the form of bilateral loans. Another 60 billion euros will be provided by European Commission. The International Monetary Fund (IMF) will grant loans of up to 220 billion euros. The total rescue package could therefore reach up to 720 billion euros. Eurozone already promised to Greece loans totalling â–  80 billion euros in the next three years, and IMF added another 30 billion euros.

The European Central Bank (ECB) announced that it will buy government bonds of Eurozone countries in the framework of the biggest intervention since autumn 2008 (otehr central banks including Fed will join). There will be also re-opened other tools to support liquidity. Stock markets are reacting positively, futures on the European and U.S. indexes are improving by 3-5%, the euro has strengthened by 1.5%.

CEZ: Neutral (Analyst: Petr Novak)

CEZ will release its 1Q2010 consolidated results tomorrow before the market opens (8:00 CET). Overall, we believe that CEZ's consolidated performance in 1Q2010 will be lower than in previous year. The main reason for the fall will be fall in average wholesale electricity prices to 54 EUR/MW (from 62 EUR/MW in 2009). The rise in domestic demand in 1Q2010 (+2.0% y/y) and rise in production of nuclear power plants will contribute positively to 1Q2010 results. The consolidation of foreign countries acquisitions acquired in last year (Turkish assets, Mibrag) and positive revaluation of option on MOL shares will help the bottom level. We project CEZ´s consolidated sales to amount to CZK 50.1 bn (-6.0% y/y). We expect CEZ´s EBITDA in 1Q2010 to amount to CZK 27.5 bn (-9.1% y/y) and EBIT to fall to CZK 21.8 bn (-11.9% y/y). We expect CEZ bottom level to reach CZK 17.2 bn (-10.1% y/y). Our expectation is fully in line with market expectation. So we do not expect any strong impact of CEZ 1Q2010 results on performance of CEZ shares.

We also do not expect CEZ mgmt to be any forced to change its guidance on 2010 performance (EBITDA CZK 88.7 bn, NI CZK 46.7 bn).

IFRS cons. (CZK m)

1Q2010e

y/y

1Q09

Market

Sales

50,086

-6.0%

53,303

52,000

EBITDA

27,466

-9.1%

30,227

27,500

margin

54.8%

-1.9pps

56.7%

52,9%

EBIT

21,844

-11.9%

24,797

21,800

margin

43.6%

-2.9pps

46.5%

41,9%

Pretax

21,578

-10.0%

23,980

21,700

Net income

17,162

-10.1%

19,091

17,300

Source: ATLANTIK FT, CEZ.

According to the news from CTK CEZ is in lawsuit with energy regulatory office in Albania regarding low tariff for CEZ distribution asset (OSSH, CEZ has 76% stake). CEZ wants to get  CZK 1 bn ( CZK 1.9/share). Such a decision of regulatory office will negatively affect performance of CEZ´s distribution asset in Albania. On the other hand we think that it will be difficult for CEZ to be successful in lawsuit with regulatory office in Albania.

TEF O2: Neutral (Analyst: Milan Vanicek)

Telefonica O2 CR as expected approved on its Friday’s AGM the CZK 40 gross dividend management proposal. The title trades with a 9.7% gross dividend yield. The last day traded with the right to the dividend is 3 September (standard T+3 settlement). The payment day is 6 October.

ECM: Neutral (Analyst: Patrick Vyroubal)

ECM announced that it sold City Court project for CZK 199m (CZK 139m after debt reduction). The buyer is Skanska Central Europe Holding that will complete the project. The proceeds will be used for financing other projects.