Czech inflation was unchanged at 2.8% yoy in November. This contrasts with our forecast and the market consensus that had expected an acceleration to 3.0% yoy, while the central bank had expected 2.9% yoy for November.

Czech inflation was unchanged at 2.8% yoy in November. This contrasts with our forecast and the market consensus that had expected an acceleration to 3.0% yoy, while the central bank had expected 2.9% yoy for November.

Food prices contributed to lower inflation than we had estimated. Prices for food and non-alcoholic beverages alone rose by 0.4% mom in November, broadly in line with our expectations. Meanwhile, prices for alcoholic beverages and tobacco surprised on the downside, falling by 0.3% mom. Fuel prices developed in line with our forecast, rising by 0.8% mom in November after a combined decline of more than 7% in the previous three months. Regulated prices, on the other hand, slightly exceeded our forecast, rising by 0.2% mom. Energy prices contributed to this, with an average increase of 0.3% mom.

Core inflation fell from 2.4% yoy in October to 2.3% yoy in November, while we and the CNB had expected it to remain unchanged. According to our estimate, seasonally adjusted mom core inflation was 0.13% in November, a deceleration from the 0.25% mom in October and roughly in line with September’s dynamics. The easing of the growth in the weighted component of imputed rents from 0.8% mom in October to 0.3% mom in November (both seasonally unadjusted) contributed to this. As a result, annual growth in imputed rents slowed from 1.7% to 1.5%. In contrast, growth in paid rents accelerated slightly from 6.2% to 6.3% yoy in November.

Inflation is likely to remain close to 3% until the end of the year but should return to the 2% target relatively quickly next year. Annual inflation is likely to remain elevated in December due to the impact of the lower statistical base from the end of last year. Whether or not inflation in December will ultimately exceed 3% yoy, i.e. the upper limit of the CNB’s tolerance band, is likely to be determined by the development of food prices, which have been very volatile in recent months. After 2.4-2.5% this year, we expect inflation to fall to around 1.8% on average next year. Falling energy prices, still-weak demand from households and firms and tight monetary policy should help to push inflation slightly below the 2% target.

We expect the CNB to keep rates on hold at its December meeting. While November inflation came in below estimates, this was partly due to the volatile food price category. Even for core inflation, it is not yet clear whether this is a one-off blip, or the start of a downward trend driven by weak demand. Moreover, ahead of today’s CPI data, central bankers made it clear that the pause in monetary easing would be on the table at the December meeting. In the meantime, the central bank was also surprised by nominal wage growth in 3Q, which printed at 7.0% yoy vs 6.1% yoy in the CNB forecast. However, we expect the CNB’s rate cuts to continue in 2025, given the ongoing subdued economic performance and our expectation of lower inflation. After the pause in December, we expect a 25bp cut in the repo rate at each monetary policy meeting next year to a terminal level of 3%, which should be reached in June.

As expected, the third quarter was the best-performing in Kofola's history. EBITDA grew +33% yoy to CZK737m on sales of CZK3.4bn (+33% yoy). In addition to strong organic growth supported by good weather, the figures were also boosted by the acquisition of the brewery group. Input prices declined as expected. 3Q24 results beat the net profit consensus by +6.3%. Kofola estimates full-year EBITDA at the high end of the original guidance. In addition, it lowered its leverage target and raised its dividend guidance, with a new expectation of at least CZK13.50.

As expected, the third quarter was the best-performing in Kofola's history. EBITDA grew +33% yoy to CZK737m on sales of CZK3.4bn (+33% yoy). In addition to strong organic growth supported by good weather, the figures were also boosted by the acquisition of the brewery group. Input prices declined as expected. 3Q24 results beat the net profit consensus by +6.3%. Kofola estimates full-year EBITDA at the high end of the original guidance. In addition, it lowered its leverage target and raised its dividend guidance, with a new expectation of at least CZK13.50.

3Q24 sales increased by +33% yoy to CZK3.4bn. Volumes grew as performance was supported by favorable weather conditions and, of course, the consolidation of acquired breweries. We estimate organic growth at a high +14% yoy. The decline in input costs for sweeteners and packaging was positive. The increase in operating expenses (sales, marketing, distribution and administration) is related to the acquisition of breweries. EBITDA grew +33% yoy to CZK737m in 3Q24. The margin is stable yoy. Former Czechoslovakia is the main pillar with a 59% share, followed by the Adriatic region with 21%. Breweries contributed 16% and Fresh&Herbs 4%. Net profit increased +55% yoy to CZK380m. This is +6.3% ahead of market estimates.

Leverage (net debt/EBITDA) decreased to 2.15x from 2.39x in 1H24 (2.28x at the end of 2023). This is well below the new lower full-year leverage target of 2.5x.

The September floods, which particularly affected the main production plant in Krnov, are expected to cause damages of approximately CZK250-300m. Most of the damage will be covered by insurance. It is estimated that the flood will have a negative impact on profit in the range of CZK25-35m. This represents 3.9% of our full-year net profit forecast. All of Kofola's operations are now running without restrictions.

Guidance: Kofola is expected to achieve full-year EBITDA of CZK1.8bn, at the upper end of the original guidance range of CZK1.55-1.80 bn. Revenues are expected to grow +25% yoy. Ytd EBITDA is 89% of the full-year target. The third quarter is Kofola's seasonally strongest and therefore the most important for the full-year result. The new leverage forecast is up to 2.5x, down from 3.0x. The dividend forecast has also been updated and is now expected to be at or above CZK13.50. Note that Kofola paid an advance dividend of CZK 7.50 in October. In our estimates, we assume a dividend of CZK19.10 for 2024. This means that Kofola should pay a final dividend of CZK11.60 next year. According to our estimates, Kofola will exceed its full-year targets.