Issuance activity: Tomorrow, MinFin is scheduled to auction CZK5.0bn of 2035 bonds and CZK1.0bn of 2038 bonds. 

Issuance activity: Tomorrow, MinFin is scheduled to auction CZK5.0bn of 2035 bonds and CZK1.0bn of 2038 bonds. We believe the issuance pace is unlikely to slow in the rest of 2025 and may pick up further in 2026. Polls indicate a high likelihood that the opposition will win the Czech Republic’s parliamentary election, scheduled for 3-4 October. A revision of the Czech Republic’s current restrictive fiscal rules seems likely after/if they take power. This may put downward pressure on the Czech ratings/outlook, as both Moody’s and Fitch expected fiscal policy to remain prudent or consolidate further in their latest reviews. More in our report here.

Market situation: The Czech rates have been better paid, especially compared to USD rates, but even looking at EUR rates the Czech curve is now at an elevated level. In our view, relentlessly hawkish CNB commentary is the primary driver, but some recent pro-inflationary data and pay flows also contributed to the move. Unlike in other episodes of rising rates, however, ASW levels remained relatively wide and the bond offer has improved. This may reflect anxiety ahead of the general election. In terms of Czech data, the PPI stagnated in August and declined by -0.8% in yoy terms. Overall, we expect subdued PPI development to continue. This should mean that increased growth in service prices will continue to be offset by goods prices within the (core) CPI.

Rates outlook: We expect headline inflation to gradually return close to the central bank’s 2% target in 2H25 and remain there in 2026. This positive outlook amid expected economic slowdown due to tariffs, as well as the impact of restrictive monetary conditions, are likely to lead to further CNB rate cuts to the 3% terminal rate. This level could, however, be reached only in 1H26. See our forecast in the Czech Economic Outlook: https://bit.ly/CEO_3Q25_EN.

Colt's 2Q25 results are weaker than market estimates. Sales are 3.7% below market consensus, and EBITDA is 6.5% lower than estimated. These results were primarily caused by the weakness of the commercial market in the U.S. and the absence of deliveries to the Czech Army. This was partially offset by the ammunition business, particularly in Europe. Colt reiterated its full-year guidance. However, Colt adjusted its revenue and EBITDA projections for 3Q25 and 4Q25. According to this projection, the last quarter of this year should be very strong. It is somewhat affected by seasonality and is likely to see some deliveries moved to it. This quarter should become the best in Colt's history.

Colt's 2Q25 results are weaker than market estimates. Sales are 3.7% below market consensus, and EBITDA is 6.5% lower than estimated. These results were primarily caused by the weakness of the commercial market in the U.S. and the absence of deliveries to the Czech Army. This was partially offset by the ammunition business, particularly in Europe. Colt reiterated its full-year guidance. However, Colt adjusted its revenue and EBITDA projections for 3Q25 and 4Q25. According to this projection, the last quarter of this year should be very strong. It is somewhat affected by seasonality and is likely to see some deliveries moved to it. This quarter should become the best in Colt's history.

Revenue for the second quarter of 2025 amounted to CZK5.5bn. This result is 8.6% weaker than last year's. There are two reasons for this decline. First, the U.S. civilian market fell by 34%, and second, demand for Colt products was probably weaker. In the coming period, we can expect increased costs, e.g., marketing costs. The second reason is the 47% yoy decline in revenues in the Czech Republic. This decline is mainly due to the absence of deliveries to the Czech Army because the framework agreement has expired. A new agreement was announced recently, so deliveries are expected to begin by the end of the year. The total number of firearms sold decreased by 28% in 2Q25. Sales of long firearms decreased by 31% yoy (most likely due to the absence of deliveries to M/LE), and sales of short firearms decreased by 25% yoy (due to a decline in the U.S. commercial market). Other sectors offset these two negative effects to some extent. European revenues are up +40% yoy and were positively affected by ammunition operations (consolidation of S&B since May 16, 2024). For the first time, European activities became Colt's most important segment in 2Q25, accounting for 39% of total sales. Other geographic sectors also grew: Africa by +164% and Asia by +74%. EBITDA for 2Q25 reached CZK1.1bn, a 23% yoy decrease.  The margin is 20.9%, slightly below the estimated 21.5%. Net profit was CZK456m, down 30% yoy.

As measured by the net debt/EBITDA ratio, leverage stands at a comfortable level of 2.47x at mid-year. This is an increase from 2.04x in 1Q25 and 2.24x at the end of 2024. This increase is not surprising and is related to Colt's M&A activity (VSS USD62m; S&B EUR43m). With the settlement of the SNC acquisition, it can be assumed that debt will increase slightly further to 2.7x.

In 2Q25, Colt's actual revenue and EBITDA fell short of its original projections by 8.3% and 11.6%, respectively. Revenues were expected to reach CZK6bn, while EBITDA was expected to reach CZK1.3bn. However, Colt reported revenues of CZK5.5bn and EBITDA of CZK1.1bn.

2025 Guidance: Although Colt did not meet its quarterly targets, the company reiterated its full-year projections. Total revenue is expected to be between CZK25bn +/- 10%, and EBITDA is expected to be between CZK5.5bn +/- 10%. The reported results for 1H25 represent 44% of Colt's full-year revenue outlook and 43% of its EBITDA outlook. However, the quarterly projections have been adjusted to reflect the impact of seasonality and the postponement of deliveries to the fourth quarter of this year. In 3Q25, revenues and EBITDA are expected to be CZK5.0bn and CZK1.2bn, respectively (previously projected at CZK6.0bn and CZK1.3bn, respectively). For 4Q25, revenues are expected to be CZK9.0bn, and EBITDA is expected to be CZK2.0bn (previously CZK7.5bn and CZK1.7bn, respectively).