The average nominal wage in the Czech Republic rose by 7.1% yoy in 3Q25 following the 7.6% yoy increase in the previous quarter (revised down from the original 7.8% yoy). After seasonal adjustment, this means, according to our estimate, a decline in qoq wage growth from 2.1% to 1.2%, with the increased comparative base in the second quarter likely helped by extraordinary bonuses that were not repeated in 3Q. From a sectoral perspective, yoy wage growth continues to be driven by the private sector. In the private sector, the average nominal wage increased by 7.3% yoy, while in the public sector it increased by 6.5% yoy. Adjusted for inflation, the purchasing power of the average wage increased by 4.5% on an annual basis.

The average nominal wage in the Czech Republic rose by 7.1% yoy in 3Q25 following the 7.6% yoy increase in the previous quarter (revised down from the original 7.8% yoy). After seasonal adjustment, this means, according to our estimate, a decline in qoq wage growth from 2.1% to 1.2%, with the increased comparative base in the second quarter likely helped by extraordinary bonuses that were not repeated in 3Q. From a sectoral perspective, yoy wage growth continues to be driven by the private sector. In the private sector, the average nominal wage increased by 7.3% yoy, while in the public sector it increased by 6.5% yoy. Adjusted for inflation, the purchasing power of the average wage increased by 4.5% on an annual basis.

Wage growth in 3Q25 was roughly in line with the CNB’s forecast and market consensus. The market median saw real wage growth of 4.6% yoy, while the central bank expected 4.4% yoy, meaning that the actual figure was only one-tenth of a percentage point higher than the CNB had predicted. The central bankers’ forecast was also roughly in line with the structure, with the market sector reporting yoy growth in average earnings of 7.1% against a forecast of 7%. The wage data thus do not significantly alter the balance of risks of the CNB’s November forecast, which continues to assume that the key repo rate will remain at the current 3.5%.

Gross real wages almost back at pre-pandemic levels. Seasonally adjusted real wages have been growing qoq for ten quarters in a row, thus offsetting most of the decline from 2021 to 2023. This is also reflected in the continuing growth in household consumption, which, according to our forecast, should be the main driver of domestic economic growth this year from an expenditure perspective. Compared to the pre-pandemic level (4Q19), the purchasing power of the average wage was 0.6% lower in 3Q25, while household consumption was 0.7% lower.

From a long-term perspective, real wages are catching up with the trend in labour productivity. Although they are still growing solidly, we do not believe that this development will cause excessive inflationary pressures for the time being. In our view, the comparison of wage trends with productivity will contribute to a slowdown in wage dynamics next year. However, there is a risk associated with the outlook in the form of a possible increase in public salaries by the new government given that since 2022 wage growth in the public sector has lagged that of the private sector.

The share of services in employment continues to grow at the expense of industry. The total number of employees converted to full-time equivalents was virtually unchanged in the third quarter after seasonal adjustment (down 0.1% qoq), but labour shifts between sectors continue. While the number of employees in industry has been falling continuously for more than three years, this continues to be offset by an increase in the workforce in services, particularly in education and healthcare.

We reiterate our Buy recommendation for Kofola CeskoSlovensko shares and a new target price of CZK557 per share (the previous recommendation and TP were Buy and CZK402 as of September 3, 2024). Kofola should benefit from organic growth and consolidation of recent acquisitions. In particular, the Pivovary CZ brewery group.

We reiterate our Buy recommendation for Kofola CeskoSlovensko shares and a new target price of CZK557 per share (the previous recommendation and TP were Buy and CZK402 as of September 3, 2024). Kofola should benefit from organic growth and consolidation of recent acquisitions. In particular, the Pivovary CZ brewery group. 

Business Outlook: In our model, we estimate revenue at CZK10.7bn and EBITDA at CZK1.76bn in 2025. From 2025 to 2029, we expect an average revenue growth of +3.0% and an EBITDA growth of +4.1%. Further acquisitions that would complement Kofola's existing operations are possible. Mergers and acquisitions (M&A) are one of Kofola's growth channels.

Valuation: We used the Discounted Free Cash Flow (DCF) model for the period from 2025 to 2029 to determine the valuation of Kofola shares. We assumed a weighted average cost of capital (WACC) of 7.0%-7.7% for the period and 7.7% for the terminal phase. This includes a discount for lower liquidity. We incorporated a long-term growth rate of 2% into our calculation. Based on the DCF model, we determined Kofola's valuation to be CZK557 per share. Compared to the current market price, this indicates a premium of +16.0%. The total potential, including dividends, is +20.6%. This corresponds to a Buy recommendation.

Based on our model, we value Kofola at a P/E ratio of 14.6x and an EV/EBITDA ratio of 8.5x (2026). The median for comparable companies is 19.6x and 14.6x, respectively. These figures suggest that Kofola is trading at a significant discount to the sector (25% and 42%, respectively). One possible explanation is the smaller Free Float. At the same time, Kofola offers a decent dividend yield, the highest among its competitors.

Main risks: In our opinion, the greatest risks include the significant increase in the prices of input materials, such as packaging and sweeteners. We also consider energy prices, which rose significantly during the energy crisis. Additionally, there are various risks related to restrictions on distribution channels, similar to those experienced during the Coronavirus crisis. There is also the possibility of an increase in taxes, e.g., on sweetened beverages. Another risk is a decline in the real purchasing power of consumers, which would likely reduce demand.