The Czech economy grew by 0.6% qoq in 4Q25, based on the second GDP reading. As in the previous five quarters, GDP growth was revised upwards from the advance estimate of 0.5% qoq in 4Q25. In yoy terms, economic growth slowed from 2.8% in 3Q to 2.6% in 4Q. While the actual GDP growth was weaker than our forecast of +0.8% qoq, its structure broadly corresponded to our expectations.

The Czech economy grew by 0.6% qoq in 4Q25, based on the second GDP reading. As in the previous five quarters, GDP growth was revised upwards from the advance estimate of 0.5% qoq in 4Q25. In yoy terms, economic growth slowed from 2.8% in 3Q to 2.6% in 4Q. While the actual GDP growth was weaker than our forecast of +0.8% qoq, its structure broadly corresponded to our expectations.

Domestic demand was the main driver of the qoq GDP increase. Household consumption rose by 1.3% qoq in 4Q25, contributing 0.6pp to qoq GDP growth. At the same time, household consumption reached its pre-pandemic level of 4Q19, after six years. Furthermore, growth in consumer spending accelerated significantly from 0.3% qoq in 3Q. This may have been due to a significant improvement in consumer sentiment towards the end of last year, as well as continued rapid wage growth. National accounts data shows that the nominal wage bill accelerated from 1.2% qoq in 3Q to 2.7% qoq in 4Q (both seasonally adjusted), and from 7.8% yoy in 3Q to 8.8% yoy in 4Q. Fixed investment also grew faster, increasing by a strong 1.7% qoq in 4Q after rising by 1.0% qoq in 3Q (contributing 0.5pp to GDP growth in 4Q25). Unlike in 3Q, when growth was driven by public sector and household investment in real estate, the private sector also contributed to higher investment activity in 4Q. Government consumption also rose, by 1% qoq in 4Q25.

Although the contribution of net exports declined, it remained positive. The contribution fell from 0.5pp in 3Q to 0.2pp in 4Q. This was mainly due to a recovery in domestic demand. While real export growth slowed slightly from 0.9% to 0.8% qoq, import growth accelerated from 0.2% to 0.6% qoq. However, goods exports were the only category to increase in 4Q25 (+1.9% qoq), while exports of services declined (-4.2% qoq). Inventories contributed negatively (-0.8pp) to qoq GDP growth in 4Q. It is possible that the recovery in demand enabled companies to gradually reduce their stock levels.

In terms of individual sectors, manufacturing performed particularly well in 4Q25. It was the dominant source of the 0.5% qoq increase in gross value added. At the turn of last and this year, there was a partial improvement in the global industrial sector. In 2H25, the domestic automotive industry was operating at almost full production capacity. However, the trade and services sectors also contributed positively to qoq growth in gross value added in 4Q. Within the market services sector, financial and insurance services posted strong growth in 4Q.

Following last year’s growth of 2.6%, we forecast the Czech economy to increase by 2.7% this year and next. Continued wage growth should support further increases in household spending, given that the labour market is likely to remain tight. According to a number of indicators, European industry is gradually recovering, which should further improve the performance of the export-oriented manufacturing sector. Structural changes associated with the growth of emerging sectors, such as defence, green technologies and ICT services are also likely to positively impact the economy. Last but not least, expansionary fiscal policy domestically and in neighbouring Germany will also have a positive effect.

Investment case: We are issuing a Sell recommendation for CEZ shares with a new target price of CZK1,079 (previous reco Hold with TP CZK923 from November 15, 2024).

There are four crucial segments for CEZ. The first is Generation, which accounts for 57% of EBITDA (9M25). Nuclear power plants are key in this area. The second is Distribution (27%), which includes a fully regulated business. Third is Sales (10%), which includes ESCO services. The smallest segment is Mining (6%). This segment will gradually decline as coal-fired power generation is phased out.

Investment case: We are issuing a Sell recommendation for CEZ shares with a new target price of CZK1,079 (previous reco Hold with TP CZK923 from November 15, 2024).

There are four crucial segments for CEZ. The first is Generation, which accounts for 57% of EBITDA (9M25). Nuclear power plants are key in this area. The second is Distribution (27%), which includes a fully regulated business. Third is Sales (10%), which includes ESCO services. The smallest segment is Mining (6%). This segment will gradually decline as coal-fired power generation is phased out.

According to the policy statement of the government appointed in December 2025, CEZ's production assets should be nationalized. It is unclear how this will happen, but no steps are expected to be taken this year. According to the Minister of Industry, steps will be taken within 18-24 months. It is unclear whether minority shareholders will be bought out or if there will be a split and subsequent squeeze-out of minority shares. Currently, the government controls nearly 70% of CEZ.

Dividend policy: CEZ usually pays 60–80% of its net profit to its shareholders. A special windfall tax (WFT) applied for the years 2023–2025. Therefore, the dividend payment for 2025, which will take place in August this year, will be affected by this tax. For 2025, we estimate a dividend of CZK41 (gross yield of 3.5%) with an 80% payout. This year's results will no longer be burdened by the WFT; therefore, the dividend to be paid next year will increase. According to our estimates, it will rise to CZK55 (with an 80% payout). We believe that a 100% dividend will return due to the deep state budget deficit. In an optimistic scenario, the dividend would increase to CZK69, reaching a gross yield of 5.9%.

We use the DCF model to value CEZ shares. We have determined the fair value to be CZK1,079. Compared to the current market price, this represents a 7.7% decline. With dividends included, the decline is 4.2%. Based on our updated price estimate, CEZ is trading at 15.4x P/E and 7.6x EV/EBITDA. The respective ratios for the pers are 15.6x and 8.8x. Therefore, CEZ is trading at a discount compared to the median for Western European utilities. However, it offers a decent dividend yield of 3.5%.

Main risks: These are risks associated with electricity generation. They include the availability of nuclear sources as well as the power price (electricity and CO₂). In the case of CEZ, political risk is also a concern. This may involve special taxes or further regulations.