Issuance activity: Tomorrow, MinFin is scheduled to auction CZK3.0bn of 2033 bonds, CZK5.0bn of 2037 bonds and CZK1.0bn of 2044 bonds. To date, the issuance campaign has largely taken place on the secondary market, with secondary tap sales totalling CZK50.6bn. However, the primary market may also be regaining importance, as the March issuance calendar indicates CZGB supply of CZK20bn, the same as in February (compared to CZK10bn in January). The draft state budget for 2026, excluding EU funds, forecasts a deficit of CZK310bn, around CZK60bn higher yoy. Overall, we estimate full-year gross issuance at CZK463bn and net issuance at CZK262bn. Further details can be found in the Czech Economic Outlook: https://bit.ly/CEO_1Q26_EN.

Issuance activity: Tomorrow, MinFin is scheduled to auction CZK3.0bn of 2033 bonds, CZK5.0bn of 2037 bonds and CZK1.0bn of 2044 bonds. To date, the issuance campaign has largely taken place on the secondary market, with secondary tap sales totalling CZK50.6bn. However, the primary market may also be regaining importance, as the March issuance calendar indicates CZGB supply of CZK20bn, the same as in February (compared to CZK10bn in January). The draft state budget for 2026, excluding EU funds, forecasts a deficit of CZK310bn, around CZK60bn higher yoy. Overall, we estimate full-year gross issuance at CZK463bn and net issuance at CZK262bn. Further details can be found in the Czech Economic Outlook: https://bit.ly/CEO_1Q26_EN.

Market situation: A risk-off mood in core markets has also been reflected in the CZGB market recently, with ASW spreads tightening along the curve. Last week, CNB Deputy Governor Eva Zamrazilová indicated that there could be scope to cut interest rates by 25bp if domestic demand pressures ease, which has not yet happened. Despite headline inflation falling below the 2% target in January, mainly due to lower energy prices, inflationary risks remain. According to her, these include the continuing rapid growth in service and real estate prices, expansionary fiscal policy and increased wage dynamics.

Rates outlook: In the baseline scenario, we do not expect the CNB to cut interest rates this year since we anticipate that the decline in headline inflation below the target will be temporary. However, given the recent softening of the CNB Board’s previously hawkish stance, there is still a risk of a cut in the short term. Later this year, we expect the new government’s fiscal stimulus, coupled with robust economic growth, to gradually intensify core inflationary pressures, making a rate cut less likely.

Investment case: We are issuing a Sell recommendation for CEZ shares with a new target price of CZK1,079 (previous reco Hold with TP CZK923 from November 15, 2024).

There are four crucial segments for CEZ. The first is Generation, which accounts for 57% of EBITDA (9M25). Nuclear power plants are key in this area. The second is Distribution (27%), which includes a fully regulated business. Third is Sales (10%), which includes ESCO services. The smallest segment is Mining (6%). This segment will gradually decline as coal-fired power generation is phased out.

Investment case: We are issuing a Sell recommendation for CEZ shares with a new target price of CZK1,079 (previous reco Hold with TP CZK923 from November 15, 2024).

There are four crucial segments for CEZ. The first is Generation, which accounts for 57% of EBITDA (9M25). Nuclear power plants are key in this area. The second is Distribution (27%), which includes a fully regulated business. Third is Sales (10%), which includes ESCO services. The smallest segment is Mining (6%). This segment will gradually decline as coal-fired power generation is phased out.

According to the policy statement of the government appointed in December 2025, CEZ's production assets should be nationalized. It is unclear how this will happen, but no steps are expected to be taken this year. According to the Minister of Industry, steps will be taken within 18-24 months. It is unclear whether minority shareholders will be bought out or if there will be a split and subsequent squeeze-out of minority shares. Currently, the government controls nearly 70% of CEZ.

Dividend policy: CEZ usually pays 60–80% of its net profit to its shareholders. A special windfall tax (WFT) applied for the years 2023–2025. Therefore, the dividend payment for 2025, which will take place in August this year, will be affected by this tax. For 2025, we estimate a dividend of CZK41 (gross yield of 3.5%) with an 80% payout. This year's results will no longer be burdened by the WFT; therefore, the dividend to be paid next year will increase. According to our estimates, it will rise to CZK55 (with an 80% payout). We believe that a 100% dividend will return due to the deep state budget deficit. In an optimistic scenario, the dividend would increase to CZK69, reaching a gross yield of 5.9%.

We use the DCF model to value CEZ shares. We have determined the fair value to be CZK1,079. Compared to the current market price, this represents a 7.7% decline. With dividends included, the decline is 4.2%. Based on our updated price estimate, CEZ is trading at 15.4x P/E and 7.6x EV/EBITDA. The respective ratios for the pers are 15.6x and 8.8x. Therefore, CEZ is trading at a discount compared to the median for Western European utilities. However, it offers a decent dividend yield of 3.5%.

Main risks: These are risks associated with electricity generation. They include the availability of nuclear sources as well as the power price (electricity and CO₂). In the case of CEZ, political risk is also a concern. This may involve special taxes or further regulations.