Industrial production fell sharply in January compared to the previous month, failing to maintain strong growth seen since September of last year. Despite this sharp decline, the outlook for industrial production remains positive, as the cyclical recovery of domestic industry should continue, although the current rise in energy prices does pose a risk. Following a positive result in December, Czech construction output declined in January due to a high comparison base and freezing weather. In contrast, retail sales excluding cars increased by 1% mom in real terms in January. Sales of non-food goods grew, while car sales continue to struggle.

Industrial production fell sharply in January compared to the previous month, failing to maintain strong growth seen since September of last year. Despite this sharp decline, the outlook for industrial production remains positive, as the cyclical recovery of domestic industry should continue, although the current rise in energy prices does pose a risk. Following a positive result in December, Czech construction output declined in January due to a high comparison base and freezing weather. In contrast, retail sales excluding cars increased by 1% mom in real terms in January. Sales of non-food goods grew, while car sales continue to struggle.

Industrial production fell by 2.6% month-on-month in January. Thanks to the cyclical recovery of the domestic industry, however, our outlook for this year remains broadly positive. The current increase in energy prices is a risk. However, the energy intensity of industry has declined in recent years, which could increase its resilience. Despite the strong month-on-month decline, industrial production practically stagnated year-on-year (−0.1%), which was a significant downside surprise compared to the market expectation of +2.6% yoy and our estimate of +1.6% yoy. After adjusting for the difference in the number of working days, production was still higher by 2.8% yoy. Today’s published data also significantly revised last year’s data.

The manufacturing industry itself saw an even more significant correction, falling by 3.8% month-on-month compared to December. The increase in energy production by more than 11% mom helped to mitigate the overall decline. Most manufacturing sectors saw a significant decline. This was generally expected after a strong performance in the fourth quarter of last year. The automotive industry also contributed to the mom decline, with production decreasing by 1.5% month-over-month, despite data from the Automotive Industry Association (AutoSAP) indicating an improvement. A significant decline in production also occurred in the engineering sector (-6.7% mom), as well as in the production of other non-metallic materials (-12%) and metal structures and metalworking products (7.6%).

The January development in the value of new industrial orders also reflected a sharp correction from the strong December. It fell by 11.3% month-on-month in nominal terms but remained at a high level and was up 9.8% year-on-year thanks to both foreign and domestic orders. The development of industrial orders and a better assessment of demand by industrialists indicate support for industrial performance in the coming months.

The sharp decline in January reflected a correction of the strong industrial performance in the final quarter of last year. Despite the disappointment in January, however, we still see factors indicating a continuation of the cyclical recovery in Czech industry. Developments on the energy markets nevertheless pose a risk, especially if energy prices remain at elevated levels for a longer period of time. Higher natural gas prices are weighing on domestic industry more than oil prices. While Czech industry is one of the least dependent on oil products in Europe in terms of energy, its dependence on natural gas is significantly higher (close to the EU average).

Czech retail sales excluding car sales rose by 1% in real terms month-on-month in January. The growth rate was revised upwards by one tenth of a percentage point for both December, when sales stagnated month-on-month according to revised data, and November, when they grew by a brisk 0.9% mom. Year-on-year growth in real retail sales excluding cars in January, adjusted for the different number of working days, accelerated from 1.8% to 5.0%, significantly exceeding the analytical consensus of 3.1%.

Sales of non-food goods grew particularly strongly. In real terms, they were 1.7% higher month-on-month. However, sales of motor fuels also increased, by 1.2% month-on-month. In contrast, food sales remained unchanged month-on-month. Car retail sales have been struggling for a long time. In January, sales of motor vehicles and repairs fell by a further 0.9% month-on-month. This was the third consecutive decline, with the last month-on-month increase in these sales occurring in July last year. Year-on-year, real sales in the automotive segment, adjusted for the different number of working days in January, were down by a significant 5.2%.

After previous rapid growth, services sales saw a slight decline in January. Real sales fell by 0.1% month-on-month. However, this followed an overall increase of almost 2% over the previous three months. Year-on-year, sales adjusted for the different number of working days in January were up 1.7%. Month-on-month sales growth in January was recorded in accommodation, food and hospitality (+0.3%), information and communication activities (+0.3%), and transport and storage (+0.1%). This was offset by a month-on-month decline in sales for real estate activities (-0.6%), administrative and support activities (-0.5%) and professional, scientific and technical activities (-0.2%).

Consumer demand continues to rise and should be the main driver of economic growth this year. Consumer sentiment improved significantly at the turn of the year and remains well above its long-term average. Wages also continue to grow rapidly, as the domestic labor market continues to struggle with labor shortages. This should continue to be the case, as we expect the economy to grow by a strong 2.7% this year, partly due to the development of new industries.

Construction industry hit by high base and bad weather in January

After growing by 1.7% month-on-month in December, Czech construction output fell by 0.8% month-on-month in January. In year-on-year terms, it was down 1.5%. This was mainly due to the strong statistical base from last year and the colder weather in January. In terms of structure, building construction fared slightly better, growing by 0.2% year-on-year, while civil engineering declined by 2% year-on-year.

In January, 4 231 building permits were issued, representing a year-on-year increase of 0.7%. Overall, however, the number of permits issued remains low. In recent years, it has been steadily declining at a rate of 5-10% per year (between 2022 and 2024). The same assessment applies to the number of building permits issued purely for residential construction. Last year, this figure reached only 23 000, the lowest since this indicator began to be monitored in 2002. Here, too, there has been a steady decline over the last four years, with the rate even reaching 20% in 2023.

The main hope for the construction industry is a revival of investment activity. Government investment grew rapidly last year, and we already saw a revival of private investment in the final quarter of 2025. With the economy and industry reviving, this could change, as the overall economic outlook now appears to be relatively positive. However, the current oil shock could reverse most of this, especially if it lasts longer.

For this year, we estimate an increase in total construction output of around 2%. However, residential construction will continue to dampen this growth. It can be assumed that the low number of building permits issued will be reflected in construction output statistics with a delay.

For the last quarter of last year, CEZ reported an EBITDA of CZK33.9bn, which is an 8.9% yoy decrease and in line with market estimates. Net profit was CZK6.0bn (-7% yoy), which is slightly weaker (-3%) than the consensus estimate. The yoy decline is mainly due to lower electricity prices. For the full year, CEZ reported EBITDA at the upper end of its projection and slightly exceeded its net profit target. This suggests a dividend of up to CZK42. However, we find this year's guidance disappointing, especially in terms of net profit.

For the last quarter of last year, CEZ reported an EBITDA of CZK33.9bn, which is an 8.9% yoy decrease and in line with market estimates. Net profit was CZK6.0bn (-7% yoy), which is slightly weaker (-3%) than the consensus estimate. The yoy decline is mainly due to lower electricity prices. For the full year, CEZ reported EBITDA at the upper end of its projection and slightly exceeded its net profit target. This suggests a dividend of up to CZK42. However, we find this year's guidance disappointing, especially in terms of net profit.

For 4Q25, CEZ reported revenues of CZK93bn, which is a 7.5% yoy decrease. EBITDA reached CZK33.9bn, corresponding to an 8.9% decrease compared to the same period the previous year. This decline is likely due to lower electricity prices in the Generation sector (from EUR135/MWh to EUR124/MWh) and lower trading profits (from CZK+0.2bn to CZK-0.8bn). Nuclear power plants were unable to compensate for the decline in emissions from renewable sources. The Distribution sector showed strength yoy. Total EBITDA for 4Q25 was CZK33.9bn, a 8.9% yoy decrease. Margins fell slightly by 0.5pps yoy to 36.5%. Adjusted net profit reached CZK6.0bn (-7% yoy) in the last quarter. Net profit exceeded our expectations by 12%, as we had anticipated a significantly higher effective tax rate.

Leverage (net debt/EBITDA) reached 1.6x at the end of 2025 (1.5x in 2024). This is slightly below our expectations (1.8x).

Results for 2025: For the full year, CEZ's EBITDA amounted to CZK137.0bn. This figure is virtually unchanged from last year (CZK137.5bn, or -0.3% yoy). Net profit reached CZK28.1bn, down 9% yoy. Thus, CEZ reached the upper limit of its full-year EBITDA projection (CZK132-137bn). The net profit of CZK28.1bn slightly exceeded the projection of CZK26-28bn. The reported figures are in line with the consensus.

Dividend: The Board of Directors' proposal for distributing last year's profits was not published with the 4Q25 report. This must be done at least one month before the General Meeting (last year on June 23) in the invitation to the GM. However, the reported net profit suggests a dividend in the range of CZK31-42 (payout ratio of 60%-80%). We are counting on an upper limit of CZK42. Compared to the current market price, this corresponds to a gross yield of +3.5%. The dividend must be approved at the GM, which usually takes place at the end of June.

Guidance 2026: CEZ projects an EBITDA of CZK103-108bn. According to management estimates, net profit is expected to be CZK27-31bn. This corresponds to a 30% yoy decline in EBITDA and a +3% growth in net profit. Unlike the decline in EBITDA, the growth in net profit is due to the absence of a special tax (WFT). However, these projections are weaker than market expectations and our own estimate. This discrepancy is likely due to an increase in financial items resulting from the anticipated high CAPEX and associated debt increase. The consensus expects EBITDA of CZK110.7bn and net profit of CZK34.6bn. Our estimates are CZK112.5bn in EBITDA and CZK37.4bn in net profit. From our perspective, CEZ's projections are disappointing, particularly the level of net profit. However, as recent years have shown, projections tend to be very conservative at the beginning of the year and increase during the year.

Dividend 2026: According to CEZ's projections for this year and the current dividend policy of distributing 60-80% of net profit, the dividend payable in August 2027 could reach CZK43 per share. This corresponds to a gross yield of +3.6%. In an optimistic scenario, we believe the entire profit could be paid out. This would mean CZK54 per share, or a yield of +4.5%. This is due to the end of the special tax (WFT) in 2025.