MinFin is scheduled to auction CZK2.0bn of 7-year floaters, CZK4.0bn of 9-year bonds and CZK2.0bn of 20-year bonds. According to our calculations, the government has secured roughly 106% of its borrowing needs since the beginning of the year. On the other hand, the current deterioration of the pandemic situation in the Czech Republic will, in our view, require an additional CZK20bn, which is included in the revised budget deficit forecast (CZK370bn, 6.5% of GDP). 

Issuance activity: MinFin is scheduled to auction CZK2.0bn of 7-year floaters, CZK4.0bn of 9-year bonds and CZK2.0bn of 20-year bonds. According to our calculations, the government has secured roughly 106% of its borrowing needs since the beginning of the year. On the other hand, the current deterioration of the pandemic situation in the Czech Republic will, in our view, require an additional CZK20bn, which is included in the revised budget deficit forecast (CZK370bn, 6.5% of GDP). We estimate the 2021 borrowing needs at CZK625bn, which is CZK44.5bn more than this year. We expect that by the end of this year, MinFin will be able to cover roughly CZK95bn of next year’s borrowing needs. In addition, the state budget plan for next year envisages drawing on CZK19bn of reserves. Overall, this would reduce CZGB gross issuance next year to CZK414.6bn (-21% yoy) and CZK268.4bn (-26% yoy) in net terms. In our view, relaxed fiscal policy and the return of strong CZGB supply in the first half of next year will lead to an increase in yields and ASW widening.

Market situation: Over the past week, the IRS curve has moved up about 2bps, while CZGB yields have grown slightly faster at most maturities. The result is a continuing cheapening in ASW terms.

Rates outlook: The market in recent days is pricing out another CNB rate cut. It currently gives about a 50% chance of lowering interest rates over the six-month horizon. Although we do not expect any change in CNB rates, the development of the pandemic in the Czech Republic, other government measures and the potential impact on the economy will be crucial in the coming weeks. On the bond side, we continue to expect their ASW widening due to the high CZGB supply next year. We continue to recommend selling CZGB 1.20% Mar-31 in ASW terms.

Avast published today selected operating indicators for the third quarter of this year. Adjusted sales increased +2.6% to USD226m and adjusted EBITDA reached USD126m, a year-on-year increase of + 3.3%.

Avast published today selected operating indicators for the third quarter of this year. Adjusted sales increased +2.6% to USD226m and adjusted EBITDA reached USD126m, a year-on-year increase of + 3.3%. However, adjusted (FX and discontinued operations) figures increased +8.6% yoy and +7.6% yoy, respectively. Since the beginning of the year, i.e. for nine months, revenues are USD659.1m (+1.9% yoy) and EBITDA of USD367.3m (+2.5% yoy).

Due to its strong ability to generate cash, the company managed to reduce its debt. Leverage (net debt / EBITDA) declined to 1.5x from 1.7x reported in 1H20. According to the press release, a strong balance sheet gives the possibility of further growth. Behind this we see further potential in M&A.

The company's management confirmed the full-year guidance. Revenues are expected to reach the upper end of mid-single-digit growth. And the EBITDA margin should remain flat yoy.

Impact on forecasts, target share price and recommendations: Avast published solid results for 3Q20. Both published numbers increased year-on-year. Customer behaviour returned to normal in 3Q20 after the first spring wave of the pandemic. As in 3Q20, revenue growth should outpace billings growth for the entire second half of the year. We consider the company's expectations to be conservative. We keep our recommendations and target price under review. We will adjust our model and release an update in the near future.