Issuance activity: Tomorrow, MinFin is scheduled to auction CZK5.0bn of 7y bonds, CZK5.0bn of 9y bonds and CZK3.0bn of 11y bonds. Last week's solo floater auction saw weaker demand than earlier floater auctions this year, with a bid-to-cover ratio of 1.5. So far this year, a total of CZK312.0bn worth of bonds had been sold in auctions, while the MinFin also carried out (mostly switch) operations on the secondary market in the amount of CZK76.4bn. From this perspective, it is so far succeeding in fulfilling the set plan, which envisages the issuance of CZK400-500bn of CZGBs this year. We estimate that after tomorrow's auction (which is the last auction of Q3), around 85% of the full-year CZGB issuance will be covered, keeping MinFin ahead of the aliquot fulfilment.

Issuance activity: Tomorrow, MinFin is scheduled to auction CZK5.0bn of 7y bonds, CZK5.0bn of 9y bonds and CZK3.0bn of 11y bonds. Last week's solo floater auction saw weaker demand than earlier floater auctions this year, with a bid-to-cover ratio of 1.5. So far this year, a total of CZK312.0bn worth of bonds had been sold in auctions, while the MinFin also carried out (mostly switch) operations on the secondary market in the amount of CZK76.4bn. From this perspective, it is so far succeeding in fulfilling the set plan, which envisages the issuance of CZK400-500bn of CZGBs this year. We estimate that after tomorrow's auction (which is the last auction of Q3), around 85% of the full-year CZGB issuance will be covered, keeping MinFin ahead of the aliquot fulfilment.

Market situation: Since the last auction (13 September), the CZK IRS curve has remained broadly unchanged. CNB Governor Michl said in an interview on Sunday that investors should "forget about a rate cut in the near future" while explicitly ruling out the possibility of a rate cut in September. Deputy Governor Frait, on the other hand, admitted that a rate cut in November or December was a possibility.

Rates outlook: In our baseline scenario, the CNB is unlikely to adjust interest rates before the end of the year. Our expectation is mainly based on the stance of CNB board members, who continue to emphasize the pro-inflationary balance of risks and communication challenges related to expected October acceleration of yoy inflation due to base effect. We believe that the cuts will have to be quick next year, with the repo rate at 4% by end-2024. However, a possible faster decline in inflation and continued subdued domestic demand could lead to earlier and faster rate cuts than we forecast.

Expected results: Tobacco products manufacturer Philip Morris CR (PMCR) is expected to post a +10.3% yoy increase in total revenues to CZK10.8bn in the first half of this year. We expect the growth to be driven by higher sales of smoke-free units combined with higher prices for conventional products. Net profit should therefore be slightly higher at CZK1.9bn (+1.1% yoy).

Announcement date: Friday 29 September 2023  

Expected results: Tobacco products manufacturer Philip Morris CR (PMCR) is expected to post a +10.3% yoy increase in total revenues to CZK10.8bn in the first half of this year. We expect the growth to be driven by higher sales of smoke-free units combined with higher prices for conventional products. Net profit should therefore be slightly higher at CZK1.9bn (+1.1% yoy).

We expect sales for the first half of this year to grow by +10.3% yoy, to CZK10.8bn. We expect a decline in sales of conventional products, which could be offset by an increase in sales of heated and smokeless products. The higher sales of smoke-free units and the higher yoy prices of classic cigarettes should influence the total revenues. We estimate that the share of the Czech cigarette market will decline to 25% (26.7% at the end of 2022). In contrast, the share of smoke-free products should increase to around 15% (13.4% in 2022). We expect a similar trend in Slovakia, the other PMCR market. There, we expect a decline in the share of traditional units to below 40% (40% in 2022), and growth in the market for smokeless products to over 16% (15.5% in 2022). The decline in the share of traditional products will be influenced by customers switching to new technologies. For the first half of the year, we estimate operating profit at CZK2.3bn, which represents a growth of +6.1% compared to the same period last year. Net income is expected to increase only slightly to CZK1.9bn (+1.1% yoy). Earnings per share would then amount to CZK674.

Dividend: As PMCR usually distributes its entire net profit to its shareholders, it is considered a dividend stock by investors. We estimate EPS for the first half of the year at CZK674. On a full-year basis, this would imply a dividend of around CZK1,350. Compared to the current market price, this represents a gross yield of +7.8%.