Czech inflation declined from 1.6% to 1.4% yoy in February, coming in below estimates. Our forecast was 1.5% yoy, while the market consensus and the CNB estimate were both 1.6%. The February decline in annual inflation was mainly due to a lower food price growth.

Czech inflation declined from 1.6% to 1.4% yoy in February, coming in below estimates. Our forecast was 1.5% yoy, while the market consensus and the CNB estimate were both 1.6%. The February decline in annual inflation was mainly due to a lower food price growth.

Food prices reversed the increase seen in January and were the main reason for the deviation from our forecast. While food and non-alcoholic beverage prices rose by 2.7% mom in January, they fell by 1.5% mom in February. Similarly, after rising by 4.7% mom in January, alcohol and tobacco prices fell by 1.2% mom in February. The entire food price group, including all beverages and tobacco, then saw a decline of 1.6% mom in February, exceeding our forecast of -1.0% mom. Consequently, annual food price growth slowed from 1.9% in January to 1.2% in February.

Fuel prices increased in February, and the conflict in the Middle East poses an inflationary risk in the months ahead. Fuel prices rose by 1.1% mom in February, but this followed a combined decline of more than 4% in the previous two months. Along with a higher comparison base from the beginning of last year, this resulted in a substantial 8.6% yoy decline in fuel prices. Regulated prices fell by 0.1% mom in February, with household energy prices dropping by an average of 0.4% mom. Fuel and energy prices have recently been among the main reasons for falling headline inflation, but the current situation in the Middle East means they now pose an inflationary risk. The conflict has caused significant increases in oil and natural gas prices. The impact on inflation will depend on the level at which energy commodity prices remain and for how long. While the impact of more expensive oil on fuel prices is relatively straightforward, the situation is more complex for other energy prices, particularly given the growing popularity of fixed-price contracts among households. The impact should also be mitigated by the fact that suppliers purchase energy in advance and that gas consumption has fallen since the war in Ukraine began, partly due to investments in energy-saving technologies. Overall, the economy is more resilient to energy shocks than in the past.

Core inflation remained unchanged at 2.7% yoy in February. This was slightly above our estimate of 2.6% yoy, but slightly below the central bank’s forecast of 2.8% yoy. In contrast, growth in service prices slowed from 4.7% to 4.5% yoy in February. On a mom basis, service prices rose by an average of 0.5%, compared to an increase of 0.7% in February 2025. However, imputed rent growth remained unchanged at 5.1% yoy, reflecting the ongoing rapid growth in house prices. Growth in paid rents then eased slightly from 6.3% to 6.1% yoy. Meanwhile, the annual decline in goods prices deepened from 0.4% to 0.7%.

For the last quarter of last year, CEZ reported an EBITDA of CZK33.9bn, which is an 8.9% yoy decrease and in line with market estimates. Net profit was CZK6.0bn (-7% yoy), which is slightly weaker (-3%) than the consensus estimate. The yoy decline is mainly due to lower electricity prices. For the full year, CEZ reported EBITDA at the upper end of its projection and slightly exceeded its net profit target. This suggests a dividend of up to CZK42. However, we find this year's guidance disappointing, especially in terms of net profit.

For the last quarter of last year, CEZ reported an EBITDA of CZK33.9bn, which is an 8.9% yoy decrease and in line with market estimates. Net profit was CZK6.0bn (-7% yoy), which is slightly weaker (-3%) than the consensus estimate. The yoy decline is mainly due to lower electricity prices. For the full year, CEZ reported EBITDA at the upper end of its projection and slightly exceeded its net profit target. This suggests a dividend of up to CZK42. However, we find this year's guidance disappointing, especially in terms of net profit.

For 4Q25, CEZ reported revenues of CZK93bn, which is a 7.5% yoy decrease. EBITDA reached CZK33.9bn, corresponding to an 8.9% decrease compared to the same period the previous year. This decline is likely due to lower electricity prices in the Generation sector (from EUR135/MWh to EUR124/MWh) and lower trading profits (from CZK+0.2bn to CZK-0.8bn). Nuclear power plants were unable to compensate for the decline in emissions from renewable sources. The Distribution sector showed strength yoy. Total EBITDA for 4Q25 was CZK33.9bn, a 8.9% yoy decrease. Margins fell slightly by 0.5pps yoy to 36.5%. Adjusted net profit reached CZK6.0bn (-7% yoy) in the last quarter. Net profit exceeded our expectations by 12%, as we had anticipated a significantly higher effective tax rate.

Leverage (net debt/EBITDA) reached 1.6x at the end of 2025 (1.5x in 2024). This is slightly below our expectations (1.8x).

Results for 2025: For the full year, CEZ's EBITDA amounted to CZK137.0bn. This figure is virtually unchanged from last year (CZK137.5bn, or -0.3% yoy). Net profit reached CZK28.1bn, down 9% yoy. Thus, CEZ reached the upper limit of its full-year EBITDA projection (CZK132-137bn). The net profit of CZK28.1bn slightly exceeded the projection of CZK26-28bn. The reported figures are in line with the consensus.

Dividend: The Board of Directors' proposal for distributing last year's profits was not published with the 4Q25 report. This must be done at least one month before the General Meeting (last year on June 23) in the invitation to the GM. However, the reported net profit suggests a dividend in the range of CZK31-42 (payout ratio of 60%-80%). We are counting on an upper limit of CZK42. Compared to the current market price, this corresponds to a gross yield of +3.5%. The dividend must be approved at the GM, which usually takes place at the end of June.

Guidance 2026: CEZ projects an EBITDA of CZK103-108bn. According to management estimates, net profit is expected to be CZK27-31bn. This corresponds to a 30% yoy decline in EBITDA and a +3% growth in net profit. Unlike the decline in EBITDA, the growth in net profit is due to the absence of a special tax (WFT). However, these projections are weaker than market expectations and our own estimate. This discrepancy is likely due to an increase in financial items resulting from the anticipated high CAPEX and associated debt increase. The consensus expects EBITDA of CZK110.7bn and net profit of CZK34.6bn. Our estimates are CZK112.5bn in EBITDA and CZK37.4bn in net profit. From our perspective, CEZ's projections are disappointing, particularly the level of net profit. However, as recent years have shown, projections tend to be very conservative at the beginning of the year and increase during the year.

Dividend 2026: According to CEZ's projections for this year and the current dividend policy of distributing 60-80% of net profit, the dividend payable in August 2027 could reach CZK43 per share. This corresponds to a gross yield of +3.6%. In an optimistic scenario, we believe the entire profit could be paid out. This would mean CZK54 per share, or a yield of +4.5%. This is due to the end of the special tax (WFT) in 2025.