Issuance activity: Tomorrow, MinFin is scheduled to auction CZK1.0bn of 2043 floater. Last week, CZK19.2bn of CZGB has been sold compared to the CZK11.0bn indicated in the first auction of the year. MinFin’s new funding and debt management strategy puts total gross issuance of CZGB for 2025 at CZK350-450bn. The midpoint of this range is thus around CZK50.0bn higher yoy. We estimate that actual gross issuance is more likely to be in the upper half of MinFin’s range. For January, the indicative amount is set at CZK23.0bn, i.e. CZK7.0bn higher mom, but will most likely be exceeded.

Issuance activity: Tomorrow, MinFin is scheduled to auction CZK1.0bn of 2043 floater. Last week, CZK19.2bn of CZGB has been sold compared to the CZK11.0bn indicated in the first auction of the year. MinFin’s new funding and debt management strategy puts total gross issuance of CZGB for 2025 at CZK350-450bn. The midpoint of this range is thus around CZK50.0bn higher yoy. We estimate that actual gross issuance is more likely to be in the upper half of MinFin’s range. For January, the indicative amount is set at CZK23.0bn, i.e. CZK7.0bn higher mom, but will most likely be exceeded.

Market situation: On the Czech data front, December PPIs published on Friday surprised to the upside with growth of 0.6% mom vs. the 0.2% expected by the BBG consensus. However, this was entirely driven by the energy component (contributing +0.8pp to mom) and was likely related to the temporary increase in spot electricity prices in December. As spot prices have since fallen, we believe that energy PPIs should offset December’s move in the coming months, limiting the pro-inflationary risk to the CPI. CNB Deputy Governor E. Zamrazilova admitted last week that the central bank could resume policy easing in ‘early 2025’, despite a pause at the December meeting. The CNB’s more dovish stance was supported by Czech CPI, which surprised to the downside in December (3.0% yoy vs. the 3.3% yoy expected by CNB and the BBG consensus; more here: https://bit.ly/CPI_Dec24_EN).

Rates outlook: Given the weak performance and outlook of the Czech economy (we expect GDP growth to be below 2% in 2025), with inflation likely remaining around the 2% target on average in 2025, we expect monetary easing to continue this year in 25bp steps at each monetary policy meeting until June, when the repo rate should reach its terminal level of 3%. However, given the hawkish bias of the CNB board, confirmed by the minutes of the December meeting, there is a risk that the easing will be more moderate than we expect.

Investment recommendation: We have updated our model for MONETA Money Bank. Based on the new forecasts, we set a new price target for Moneta of CZK143.3. This corresponds to a Buy rating (the recommendation and target price were under review on 7/25/2024). Moneta trades at a premium to its peer group. According to our estimates, Moneta trades at a P/B of 2.3x, a P/E of 13.4x and a P/S of 5.8x. The median of the peer group is 1.3x, 6.8x and 1.2x. We believe that the premium is justified. This could be due to a strong capital position, asset quality, a conservative business model or a high dividend.

Investment recommendation: We have updated our model for MONETA Money Bank. Based on the new forecasts, we set a new price target for Moneta of CZK143.3. This corresponds to a Buy rating (the recommendation and target price were under review on 7/25/2024). Moneta trades at a premium to its peer group. According to our estimates, Moneta trades at a P/B of 2.3x, a P/E of 13.4x and a P/S of 5.8x. The median of the peer group is 1.3x, 6.8x and 1.2x. We believe that the premium is justified. This could be due to a strong capital position, asset quality, a conservative business model or a high dividend.

Results and outlook: According to our forecasts, Moneta's total operating income is expected to grow by +5.8% yoy last year. Net interest income will also grow (+4.2% yoy) due to lower funding costs as deposit rates fall. The net interest margin is expected to increase slightly in 4Q24. For the full year, however, it will be slightly lower. Fees and commissions are one of the drivers of full-year growth. Successful distribution of investment products will increase them by +13.3% yoy. Operating expenses will remain stable yoy according to our model. Rising personnel costs will be offset by lower administrative costs and lower regulatory fees. We estimate net income to grow +9.7% yoy to CZK5.7bn.

Shareholder remuneration: Moneta's dividend policy is to distribute at least 70% of consolidated net income to its shareholders. However, the Bank's management plans to pay a dividend of at least 80%. This depends on Moneta's capital position, which is strong and meets the capital requirements, including the management reserve, by a margin. Last year, an ordinary dividend of CZK9 was paid in May, representing a payout ratio of 88%. In addition, Moneta paid a special dividend of CZK3 in December. The total payout ratio would then be 118%. In the following years, we expect to pay out the entire net profit. This year, we expect to pay a dividend of CZK11.2 per share from the 2024 profit. This dividend corresponds to the payout ratio of 100% and offers a gross yield of +8.7%. In the following years of the forecast period, the yield could rise above +9%. The capital adequacy ratio for 9M24 was 19.2%. It is thus safely above the requirement of 15.25% (from January 2025). MONETA continues to accrue 90% of consolidated net profit for future dividend payments. For 9M24, CZK3.8bn or CZK7.5 per share.

Valuation: We arrived at the target price of Moneta using three valuation methods: the discounted cash flow model, dividend discount model and excess return model. Comparing our new target price to the market price offers a total return of +20.0%. This corresponds to a Buy recommendation.