Czech inflation stagnated at 2% yoy in March, in line with market consensus. At more decimal places, consumer price growth was 1.97% yoy, the same as in the previous month. This was only marginally higher than our estimate of 1.94%. Compared to the CNB’s last forecast, published in early February, headline inflation was significantly lower, with the central bank expecting 2.9% yoy for March. However, significant deviations from the CNB’s forecast had already occurred in January and February.

Czech inflation stagnated at 2% yoy in March, in line with market consensus. At more decimal places, consumer price growth was 1.97% yoy, the same as in the previous month. This was only marginally higher than our estimate of 1.94%. Compared to the CNB’s last forecast, published in early February, headline inflation was significantly lower, with the central bank expecting 2.9% yoy for March. However, significant deviations from the CNB’s forecast had already occurred in January and February.

Consumer prices rose by an average of 0.1% mom, which was in line with our forecast. The structure of mom inflation also broadly corresponded to our projections. In March, the main increases were in fuel prices (+1.6% mom) and regulated prices (+0.7% mom), the latter reflecting a 53.3% rise in the price of the annual motorway vignette. On the other hand, food prices continued to fall, by 0.8% mom. This was partly offset by an increase in alcohol and tobacco prices of 0.5% mom, including the impact of higher excise duties on tobacco products. Food and non-alcoholic beverages were the only group in the consumer basket to have recorded a price decrease on an annual basis (-5.9% yoy), and this is the main reason why headline inflation has remained at the CNB's 2% target. In contrast, growth in regulated prices accelerated from 6.0% to 6.6% yoy, boosted by higher motorway tolls, while growth in fuel prices picked up strongly from 1.2% to 4.8% yoy.

Core inflation fell from 2.8% yoy in February to 2.7% yoy in March. This was above our estimate of 2.5% yoy, but below the CNB’s forecast of 3.3% yoy. We estimate that seasonally adjusted mom core inflation eased from 0.46% to 0.30%. The previous month’s reading was likely influenced by the postponement of the usual annual price adjustment from January to February, as some sellers waited for new energy price lists. Price developments for goods and services continued to diverge markedly. As in February, goods prices were unchanged mom and rose only slightly by 0.1% yoy. Services price growth slowed from 0.7% mom in February to 0.4% mom in March, but accelerated from 5.2% to 5.4% yoy. The services sector remains the main reason why core inflation, which is the key indicator for the central bank, has not yet fallen to the 2% target. It is therefore likely that the rapid rise in services prices will remain the reason for the CNB board to lower interest rates only gradually.

We expect both headline and core inflation to remain within the central bank’s tolerance band, i.e. below 3% yoy, until the end of the year. Headline inflation is likely to accelerate towards 2.5% yoy in 4Q24, in our view. However, this should be a technical effect from last year’s lower comparison base, as market energy prices started to fall in 4Q23. Since the beginning of this year, however, this favourable effect has been offset by a significant increase in the regulated components of energy prices. We expect core inflation to remain in the upper half of the CNB’s tolerance band, i.e. above 2% yoy, as growth in services prices is likely to remain high – it tends to be more persistent than growth in goods prices.

Kofola has published its annual report with a full set of results for last year, which confirmed the already announced (February 15, 2024) selected operational indicators. In our view, the outlook for strong sales growth of +14% in 1Q24, despite the fact that the first quarter is seasonally the weakest, is important information. This confirms Kofola's strong position despite concerns about a drop in demand due to the VAT increase on soft drinks since the beginning of the year.

Kofola has published its annual report with a full set of results for last year, which confirmed the already announced (February 15, 2024) selected operational indicators. In our view, the outlook for strong sales growth of +14% in 1Q24, despite the fact that the first quarter is seasonally the weakest, is important information. This confirms Kofola's strong position despite concerns about a drop in demand due to the VAT increase on soft drinks since the beginning of the year.

Kofola reported revenues of CZK2.1bn in 4Q23, up +14.3% compared to 4Q22. For FY23, revenues amounted to CZK8.7bn. This represents a year-on-year growth of +10.3%. Quarterly EBITDA is CZK116m (-49.4% y/y) and FY EBITDA is CZK1.25bn (+12.6% y/y). This is in line with Kofola's guidance of CZK1.10-1.25bn. Personnel costs increased in the last quarter, probably due to year-end bonuses. Operating loss for 4Q23 is CZK16m (CZK88m in 4Q22) and CZK 719m for the FY (+35.0 % y/y). In the last quarter of last year, Kofola recorded a net loss of CZK61m (CZK54m in 4Q22). The net profit for the full year increased by +62.7% to CZK340m.

Full year guidance: This year, Kofola should achieve EBITDA of CZK1.55-1.80bn and sales growth of +25% y/y, including acquisitions. As for Kofola standalone (comparable to 2023), EBITDA should be CZK 1.35-1.45 bn and revenue growth +7% y/y. Our estimate is for total EBITDA of CZK1.5-1.6bn, which is the lower end of Kofola's target.

In the first quarter of this year, Kofola's sales grew by +14% year-on-year and the volume sold increased by +7%.

Leverage was 2.28x (net debt/EBITDA) at the end of last year, down from 2.97x (2022). We expect it to increase given the current acquisitions. Kofola expects leverage to be below 3.0x at the end of this year (2024). This is well below the bank covenant of 3.5x.

The dividend should remain at the same level as in previous years, i.e. CZK13.50 (gross yield +4.9%) per share. The dividend is traditionally decided towards the end of the year (last year it was approved in September, and payment started in November).