Czech inflation rose from 2.4% yoy in May to 2.9% yoy in June. This was in line with our forecast and the market consensus. The Czech National Bank had expected inflation to reach 2.8% yoy in June, but the pace was already 0.1pp above the central bank’s forecast in May. The lower base of last year significantly contributed to further acceleration in yoy consumer price growth, following 2.4% yoy in May and 1.8% yoy in April.

Czech inflation rose from 2.4% yoy in May to 2.9% yoy in June. This was in line with our forecast and the market consensus. The Czech National Bank had expected inflation to reach 2.8% yoy in June, but the pace was already 0.1pp above the central bank’s forecast in May. The lower base of last year significantly contributed to further acceleration in yoy consumer price growth, following 2.4% yoy in May and 1.8% yoy in April.

While fuel prices increased, food prices remained broadly unchanged. Fuel prices rose by 1.0% mom in June, exceeding our forecast. This was primarily due to developments in the final week of the month, after our estimate had been finalised. The conflict in the Middle East and the subsequent increase in oil prices continued to affect fuel prices. Nevertheless, they were still 9% lower than a year ago. By contrast, food price growth was slightly below our forecast. The price of food and non-alcoholic beverages increased by 0.2% mom, while the price of alcoholic beverages and tobacco fell by 0.2% mom. However, on a yoy basis, price growth of food and non-alcoholic beverages accelerated from 5.4% to 6.2% and that of alcoholic beverages and tobacco from 3.7% to 4.1%. This was due to the lower base effect. Regulated prices edged up by 0.1% mom, which was broadly in line with our forecast. Energy prices continued to decline gradually, by an average of 0.3% mom.

Core inflation accelerated from 2.8% to 3.0% yoy in June. This was in line with our estimate and the CNB’s forecast. However, we estimate that core inflation slowed from 0.3% to 0.2% mom in seasonally adjusted terms. Year-on-year core inflation was also affected by the base effect related to package holiday prices, which deviated from their traditional seasonal pattern last year. While package holiday prices increased by 0.2% mom in June 2024, they rose by 2.4% mom in June 2025.

Services price growth increased from 4.9% to 5.0% yoy in June, boosted by higher rents. Although imputed rents slowed from 0.8% mom to a still-significant 0.5% mom, their yoy growth increased from 4.6% to 4.9%. Strong house price growth continued to impact the affordability of owner-occupied housing, putting pressure on paid rents, which increased by a notable 0.7% mom after rising by 0.3% mom in May. Consequently, yoy growth in paid rents accelerated from 5.7% to 6.3%. However, elevated services inflation was still offset by goods prices, which increased from 0.9% to 1.6% yoy in June, but mainly due to higher food price growth driven by the base effect.

We assume that June was the peak of both headline and core inflation. We expect to see a gradual decline over the coming months. This trend should be supported by a higher base effect, given that the momentum of food prices and core inflation increased in 2H24 compared to 1H24. Indeed, 2H24 was already marked by accelerated imputed rent growth, which should reduce further increases in yoy dynamics in 2H25.

We forecast inflation to be close to 2.4% in 2025, so roughly the same as last year. We expect headline inflation to fall gradually to the 2% target over the remainder of the year, though core inflation is likely to remain above 2.5% yoy, in our view. Nevertheless, we anticipate that both price indicators will approach 2% next year. We expect inflation to be driven down by the impact of tight monetary policy, positive spillovers from lower energy and fuel prices, and a slowdown in the domestic economy due to US tariffs.

Investment Recommendation: We reiterate our "Buy" recommendation for Colt CZ Group SE. Our updated Target Price is now CZK893 per share. Our previous Target Price was CZK921 (February 9, 2024). Our new Target Price indicates an upside potential of +21% compared to the current market price. Therefore, we confirm our Buy recommendation, which remains unchanged. 

Investment Recommendation: We reiterate our "Buy" recommendation for Colt CZ Group SE. Our updated Target Price is now CZK893 per share. Our previous Target Price was CZK921 (February 9, 2024). Our new Target Price indicates an upside potential of +21% compared to the current market price. Therefore, we confirm our Buy recommendation, which remains unchanged. 

There are three main markets that are most important for Colt. The first is the commercial market in the United States. This sector accounts for approximately 40% of total sales. The Czech Republic accounts for about 20%. Supplies to the Czech Army dominate this market. The third market is Europe (excluding the Czech Republic), which accounts for 28%. The significant increase in earnings in 2024 is due to the integration of the acquired company, Sellier & Bellot, into the group. Ammunition sales improved the results. There was a decline in Canada, wherean order from the Canadian government related to delivery to Ukraine was not repeated. We expect the US market to gradually recover. We see opportunities in European markets, where we anticipate rearmament. We also anticipate growth among African and Asian customers in the M&LE sector.

Colt is a very active player in M&A. Given that Colt aims to double in size over the next five years, acquisitions will continue to be a key channel of growth for the company. The acquisition of Sellier & Bellot in May 2024 was successful. Just a few days ago, Colt announced the purchase of VSS, a manufacturer of firearm parts. These acquisitions should deepen vertical integration and increase margins. In addition to acquiring ammunition manufacturers, Colt may also target manufacturers of firearms, equipment, or optics.

Dividends: This year, Colt will pay CZK15 per share. This is a decrease from CZK30 a year earlier. However, Colt plans to buy back shares in an amount equivalent to the proposed dividend. The CZK15 dividend corresponds to a payout ratio of 44% and a gross yield of 2.1%. Given Colt's ability to generate cash, we expect 80% of net profit to be distributed in the coming years. The gross yield could be around 4-6%.

We used a discounted free cash flow model to value Colt's shares. We estimated the target price, or fair value, at CZK893 per share. This values Colt a P/E ratio of 19.4x (2025) and 17.3x (2026) and an EV/EBITDA multiple of 11.6x (2025) and 10.8x (2026). Compared to peer companies in the sector, Colt is trading at a premium.