As expected, the CNB made no changes to interest rates at its March meeting. The repo rate remained at 3.75%, following a unanimous decision by the bank’s board. At the press conference, Governor Michl continued to emphasise the upside risks to inflation and the central bank’s determination to rely on newly released data for any new action. As a result of increased global uncertainty, we expect the CNB to continue to cut rates only gradually, at a pace of 25bp per quarter. Specifically, we expect a cut at the May, August and November meetings, which would bring the repo rate to a neutral level of 3%. This should be supported by the inflation outlook, as we expect it to remain well within the CNB’s tolerance band. However, given the board’s continued hawkish communication, we see the risks to our forecast as skewed towards higher for longer rates.

As expected, the CNB made no changes to interest rates at its March meeting. The repo rate remained at 3.75%, following a unanimous decision by the bank’s board. At the press conference, Governor Michl continued to emphasise the upside risks to inflation and the central bank’s determination to rely on newly released data for any new action. As a result of increased global uncertainty, we expect the CNB to continue to cut rates only gradually, at a pace of 25bp per quarter. Specifically, we expect a cut at the May, August and November meetings, which would bring the repo rate to a neutral level of 3%. This should be supported by the inflation outlook, as we expect it to remain well within the CNB’s tolerance band. However, given the board’s continued hawkish communication, we see the risks to our forecast as skewed towards higher for longer rates.

The Czech National Bank kept interest rates on hold at today’s meeting, as expected. The key repo rate remained at 3.75%, with all seven members of the board voting in favour. This was a widely anticipated move, fully priced in by financial markets and hinted at in recent comments from some board members. The current global uncertainties added to the cautious approach to rate cuts and hawkish communication that have become the hallmark of the CNB board. The most pressing global uncertainties are the unclear impact of US tariffs, higher defence spending by European countries, and the planned fiscal stimulus for the German economy through higher infrastructure spending. In addition, there are inflationary risks to the CNB’s latest forecast from February. Compared to the central bank’s expectations, the Czech economy and wages grew faster in 4Q24, and inflation was also slightly above the CNB’s forecast in January and February this year. Governor Michl’s press conference did not bring anything new, as he continued to emphasise the upside risks to inflation and that further steps would depend on newly released data.

We expect both headline and core inflation to remain within the CNB’s tolerance band this year and next, which should lead to interest rates falling towards a neutral level. We see the risks to our inflation forecast as broadly balanced, given the potentially offsetting effects of global factors. Although the performance of the Czech economy in 2H24, as measured by GDP, was surprisingly good, a closer look at the data reveals a number of uncertainties. Against the backdrop of continued weakness in industry and a deterioration in consumer sentiment at the turn of the year, we cannot rule out a significant slowdown in GDP and wage growth this year. The threat of US tariffs is also likely to weigh on the economy.

We expect the central bank to cut rates at a pace of 25bp per quarter, specifically at the May, August and November meetings. At each of these meetings, the board will receive a new forecast from staff, which we believe should reassure the members that inflation is on a steady path towards the 2% target. At the same time, this pace should match the cautious rate cut moves that the board has favoured up to now, and provide sufficient room for assessing new data and the possible materialisation of global uncertainties. We leave our estimate for the repo rate at the end of this year unchanged at 3%. However, given the increased uncertainty, we now expect the 3% neutral rate to be reached in November rather than June, as previously assumed. As the board’s communication remains hawkish, we see the risks to our CNB rate forecast as skewed towards an even slower decline or that rates could bottom at a higher level than in our forecast. Overall, we expect the CNB’s next steps to depend on incoming data and global political events.

4Q24 results are slightly weaker than expected at the operating level. This is probably due to lower trading margins. The halving of the dividend does not look optimistic at first glance, but it is now accompanied by share buybacks of the same amount as the dividend.

Colt CZ reported 4Q24 EBITDA of CZK1.6bn (+42% yoy), only slightly (-2.5%) below the market consensus. This was on revenues of CZK7.4bn (+50% yoy), which were +7.0% ahead of estimates. The FY results were ahead of Colt's revenue guidance and closer to the top end of the company's EBITDA target. Colt is considering a dividend of CZK15, half of last year's CZK30. However, it is also planning SBB at the same amount as the proposed dividend. Forecasts for this year point to revenue and EBITDA growth of 12% and 20% respectively.

4Q24 results are slightly weaker than expected at the operating level. This is probably due to lower trading margins. The halving of the dividend does not look optimistic at first glance, but it is now accompanied by share buybacks of the same amount as the dividend.

Colt CZ reported 4Q24 EBITDA of CZK1.6bn (+42% yoy), only slightly (-2.5%) below the market consensus. This was on revenues of CZK7.4bn (+50% yoy), which were +7.0% ahead of estimates. The FY results were ahead of Colt's revenue guidance and closer to the top end of the company's EBITDA target. Colt is considering a dividend of CZK15, half of last year's CZK30. However, it is also planning SBB at the same amount as the proposed dividend. Forecasts for this year point to revenue and EBITDA growth of 12% and 20% respectively.

Colt CZ reported strong 4Q24 sales growth of +50% yoy to CZK7.4bn. This is +7% ahead of the market consensus. The high yoy growth is mainly due to the consolidation of Sellier & Bellot and the increase in M&LE sales. This is probably related to the +17% yoy increase in long guns sales (with higher margins). All three key markets, which together account for almost 90% of sales, showed significant yoy growth. Sales in the Czech Republic increased by +59% yoy due to deliveries to the Czech Army. Sales in the US, the company's most important market, were up +48% yoy and the market there seems to be recovering as expected. In Europe (excluding the Czech Republic), sales grew by a massive +295% yoy. This is mainly due to the consolidation of the Group's ammunition business (S&B). In Canada, however, revenues declined (-54% yoy) due to the absence of a contract for Ukraine, which will not be repeated in 2024. Adjusted EBITDA reached CZK1.6bn in 4Q24, up +42% yoy. EBITDA was adjusted for current items (e.g. stock option plan) as well as for the write-off of investments in the Czech Republic and the US. Net profit was up +13% yoy to CZK640m.

Leverage: The net debt/EBITDA ratio was 2.26x at the end of last year. In 9M24, it was 2.83x. The decline occurred after the issuance of new shares in October to settle the S&B acquisition.

Achieving 2024 targets: For the full year last year, Colt CZ reported revenues of CZK22.4bn and EBITDA of CZK4.6bn. Colt slightly exceeded its revenue target and is close to the top end of its full-year EBITDA guidance.

Dividend & SBB: Colt CZ is proposing that shareholders approve a dividend of CZK847m or CZK15 per share. This would be less than the CZK30 paid last year. However, Colt also plans to buy back its own shares for the same amount, i.e. CZK847m. The proposed dividend represents approximately 43.8% of net profit and implies a gross yield of +1.9%. Our expectations for the dividend were more optimistic at CZK32.20, but we did not include the share buyback.

Guidance 2025: The current year will be the first year of full consolidation of S&B (2024 from 16 May). Colt's financial performance should increase as a result. According to our forecast, Colt should achieve total revenues of CZK25.2bn and EBITDA of CZK5.6bn this year. Colt's full-year guidance is for revenues of CZK25bn (+/- 7%, range CZK23.25-26.75bn) and EBITDA of CZK5.5bn (+/- 7%, range CZK5.1-5.9bn). This represents yoy revenue growth of almost +12% and EBITDA growth of +20%.