As expected, the CNB left interest rates unchanged. The central bank’s previously relatively hawkish communication was softened by a change in the balance of risks of the outlook for the fulfilment of the inflation target, which shifted from ‘pro-inflationary‘ to ‘balanced‘. According to the governor, this reassessment is due to new risks arising from a potential global correction in asset prices, as well as a reduction in energy prices resulting from the transfer of payments for renewable energy sources to the government. However, given the administrative nature of lower energy prices and their only temporary effect on inflation, the Bank Board is willing to tolerate headline inflation slightly below the 2% target next year and will not respond by changing the monetary policy stance. According to the governor, the central bank’s next steps could go in either direction. Our baseline scenario is that the repo rate will remain at 3.5% throughout next year.

As expected, the CNB left interest rates unchanged. The central bank’s previously relatively hawkish communication was softened by a change in the balance of risks of the outlook for the fulfilment of the inflation target, which shifted from ‘pro-inflationary‘ to ‘balanced‘. According to the governor, this reassessment is due to new risks arising from a potential global correction in asset prices, as well as a reduction in energy prices resulting from the transfer of payments for renewable energy sources to the government. However, given the administrative nature of lower energy prices and their only temporary effect on inflation, the Bank Board is willing to tolerate headline inflation slightly below the 2% target next year and will not respond by changing the monetary policy stance. According to the governor, the central bank’s next steps could go in either direction. Our baseline scenario is that the repo rate will remain at 3.5% throughout next year.

As expected, the Czech National Bank left interest rates unchanged at today’s meeting. The key repo rate thus remained at 3.5%, where it had been set after the last reduction in May, for the fifth time in a row. All six members of the Bank Board who were present supported this decision, with Deputy Governor Eva Zamrazilová not attending today’s meeting.

At its December meeting, the Bank Board did not have a new forecast at its disposal, but the data did not deviate significantly from the existing one. Headline inflation reached 2.1% yoy in November, which was 0.1pp lower than expected by the CNB, while core inflation was 0.2pp lower than expected (2.6% compared to an expected 2.8% yoy). However, core inflation continues to be driven by increased price growth for services and imputed rents. Wage growth in the third quarter was broadly in line with the CNB’s forecast and remained robust at 7.1% yoy in nominal terms. Czech economic activity surprised both the central bank and the financial market with its strength (2.8% vs an expected 2.2% yoy), mainly due to net exports and investment, which reduce the pro-inflationary tone of the GDP data. Compared to the central bank’s forecast, the koruna exchange rate had a disinflationary effect, with an expected average of EURCZK 24.40 for the fourth quarter by the CNB, while the actual level will be around 10 halers lower.

The most significant change in communication is the shift in the assessment of the balance of risks and uncertainties in achieving the inflation target, moving from a ‘pro-inflationary’ stance to a ‘balanced’ one. At a press conference, Governor Michl said that this was mainly due to the identification of new disinflationary risks, such as the threat of a global correction in asset prices and a reduction in energy prices resulting from the transfer of payments for renewable energy sources to the state. Other risks on both the inflationary and disinflationary sides remained virtually unchanged. On the upside, the CNB mentioned the potential for an acceleration in the growth of money supply, driven by household and government lending, rapid wage growth and sustained growth in service prices, including imputed rents. According to the CNB, risks on the downside include a stronger koruna exchange rate, the impact of higher tariffs, and the weak performance of some euro area economies.

Although inflation may fall below the CNB’s target next year, this does not necessarily mean that interest rates will go down. According to our estimates, headline inflation should fall into the lower half of the CNB’s tolerance band due to the transfer of payments for renewable energy sources to the government. However, this may not be sufficient for further monetary policy easing. In our view, this temporary, one-off anti-inflationary administrative measure will gradually be offset by the pro-inflationary effects of a looming more expansionary fiscal policy. At a press conference, Governor Michl admitted that the CNB would tolerate a slight undershooting of the inflation target next year due to cheaper energy. In this context, he stated that the Bank Board agrees that it will not respond to this slowdown in inflation. Furthermore, the fall in energy prices at the start of next year will only impact inflation in the following year, whereas the CNB’s monetary policy horizon is 4-6 quarters into the future. Overall, we expect the repo rate to remain at its current level of 3.5% throughout next year. It will now be important to monitor the draft government budget for 2026, which the new government is likely to present at the beginning of next year. We believe there is an increasing risk that the public finance deficit could slightly exceed 3% of GDP next year. In its latest forecast, the CNB predicted a deficit of 2.2% of GDP for 2026.

We reiterate our Buy recommendation for Kofola CeskoSlovensko shares and a new target price of CZK557 per share (the previous recommendation and TP were Buy and CZK402 as of September 3, 2024). Kofola should benefit from organic growth and consolidation of recent acquisitions. In particular, the Pivovary CZ brewery group.

We reiterate our Buy recommendation for Kofola CeskoSlovensko shares and a new target price of CZK557 per share (the previous recommendation and TP were Buy and CZK402 as of September 3, 2024). Kofola should benefit from organic growth and consolidation of recent acquisitions. In particular, the Pivovary CZ brewery group. 

Business Outlook: In our model, we estimate revenue at CZK10.7bn and EBITDA at CZK1.76bn in 2025. From 2025 to 2029, we expect an average revenue growth of +3.0% and an EBITDA growth of +4.1%. Further acquisitions that would complement Kofola's existing operations are possible. Mergers and acquisitions (M&A) are one of Kofola's growth channels.

Valuation: We used the Discounted Free Cash Flow (DCF) model for the period from 2025 to 2029 to determine the valuation of Kofola shares. We assumed a weighted average cost of capital (WACC) of 7.0%-7.7% for the period and 7.7% for the terminal phase. This includes a discount for lower liquidity. We incorporated a long-term growth rate of 2% into our calculation. Based on the DCF model, we determined Kofola's valuation to be CZK557 per share. Compared to the current market price, this indicates a premium of +16.0%. The total potential, including dividends, is +20.6%. This corresponds to a Buy recommendation.

Based on our model, we value Kofola at a P/E ratio of 14.6x and an EV/EBITDA ratio of 8.5x (2026). The median for comparable companies is 19.6x and 14.6x, respectively. These figures suggest that Kofola is trading at a significant discount to the sector (25% and 42%, respectively). One possible explanation is the smaller Free Float. At the same time, Kofola offers a decent dividend yield, the highest among its competitors.

Main risks: In our opinion, the greatest risks include the significant increase in the prices of input materials, such as packaging and sweeteners. We also consider energy prices, which rose significantly during the energy crisis. Additionally, there are various risks related to restrictions on distribution channels, similar to those experienced during the Coronavirus crisis. There is also the possibility of an increase in taxes, e.g., on sweetened beverages. Another risk is a decline in the real purchasing power of consumers, which would likely reduce demand.