Issuance activity: Tomorrow, MinFin is scheduled to auction CZK6.0bn of 6y bonds, CZK5.0bn of 8y bonds and CZK3.0bn of 9y floaters. Since the last auction, MinFin presented its updated budget proposal for 2022. However, not all of its details and assumptions have been made available already (especially the new macroeconomic forecast of MinFin). As a result, we still expect this year’s state budget deficit to end up slightly lower (CZK320.0bn) than MinFin expects (CZK330.0bn). We believe that roughly 68% of this year’s financing needs will have been covered after tomorrow’s auction.

Issuance activity: Tomorrow, MinFin is scheduled to auction CZK6.0bn of 6y bonds, CZK5.0bn of 8y bonds and CZK3.0bn of 9y floaters. Since the last auction, MinFin presented its updated budget proposal for 2022. However, not all of its details and assumptions have been made available already (especially the new macroeconomic forecast of MinFin). As a result, we still expect this year’s state budget deficit to end up slightly lower (CZK320.0bn) than MinFin expects (CZK330.0bn). We believe that roughly 68% of this year’s financing needs will have been covered after tomorrow’s auction.

Market situation: Czech IRS decreased up to 35bp since the last auction (27 July) mostly as a result of lowering expectations of CNB’s policy rate path and recession fears. CZGBs followed that pattern and their yields even dropped some 20bp more than IRS, resulting in richening in ASW terms, despite Moody’s worsening outlook of CZ rating from ‘stable’ to ‘negative’.

Rates outlook: Financial markets expect the CNB's two-week repo rate is already at its peak of 7%. Our forecast expects first stability and then a further 50bp rise in the base rate at the November meeting to 7.5% due to elevated inflationary and koruna depreciation pressures. Subsequent rate hikes are likely to be less urgent in an environment of receding inflationary pressures and a recessionary economy caused also by high energy prices. However, demand will also weaken, reflecting, among other things, the lagged effect of previous monetary tightening. This macroeconomic climate will, in our view, subsequently result in a reversal and a brisk reduction in domestic monetary policy rates throughout next year and most of 2024. The base rate could reach a neutral 3% in the third quarter of 2024.

CEZ reported its results for the second quarter of the year today. They rose substantially year-on-year. EBITDA profit rose 34% to CZK15.6bn and net profit rose 137% to CZK6.9bn. CEZ raised its full-year EBITDA and net profit targets for the second time this year.

CEZ reported its results for the second quarter of the year today. They rose substantially year-on-year. EBITDA profit rose 34% to CZK15.6bn and net profit rose 137% to CZK6.9bn. CEZ raised its full-year EBITDA and net profit targets for the second time this year.

High electricity prices are behind the year-on-year growth. The largest contributor to year-on-year growth was the generation segment (nuclear and coal plants). The realised electricity price should reach EUR103-107/MWh (May estimate EUR95-98), which is double the prices at which it was sold last year. Year-on-year, generation at nuclear power plants increased slightly (3%). Coal-fired plants produced 10% more, while production from renewable sources fell. Unsurprisingly, generation from the only gas-fired power plant in CEZ's portfolio also fell. This reason is that the total volume of electricity generated is roughly the same as last year. Total revenues reached CZK54.5bn, an 11% increase yoy. EBITDA profit rose 34% to CZK15.6bn. Trading profit (CZK2bn) was also positive, whereas last year CEZ recorded a loss. Net profit for the second quarter reached CZK6.9bn, which corresponds to yoy growth of 137%.

As of 30 June, the price of electricity sold rose to EUR90.5/MWh (previous EUR70.9) for 2023 and EUR88.7 (EUR69.2) for 2024 and EUR101.7 (EUR76.3) for 2025.

The leverage of 0.9x (net debt/EBITDA) is the same as last quarter but down from 1.8x at the end of last year.

This is the second time this year that CEZ management has increased its full-year guidance. The reason for the increase is higher electricity price in conventional, mainly nuclear, power plants. According to the new projection, EBITDA should reach CZK110-115bn and net profit CZK60-65bn (the previous projection of 10 May was CZK95-99bn and CZK45-49bn). The realised electricity price should reach EUR103-107/MWh, which is double the price at which it was sold last year. The net profit serves as the basis for the dividend calculation. Thus, the new projection suggests a dividend of almost CZK100 per share at the upper end of the dividend payout ratio (60-80%) or a gross yield of about 9.5%. By comparison, CEZ will pay CZK48 this year.