We maintain our BUY recommendation with a new price target of CZK 585. Highlights:
CEZ is perhaps the best possible investment into European utilities currently as it offers less risk, more profitability and higher growth to investors than any of its peers.
We are increasing our target price to CZK 585 per CEZ share based on 4 main growth factors contributing to a brighter outlook for CEZ’s top-line development.
· The 11% wholesale price increase in 2005 could continue through 2008, causing the EBITDA margin to reach an excellent 43%.
· Integration of Czech distribution companies will bring not only further cost savings but also top-line growth through the distribution fee increase.
· As its leverage is rather low, CEZ has potential for further growth through acquisitions in the CEE region.
· Integration of coal mines in Czech Republic will not only secure the fuel supply for CEZ’s coal‑ fired power plants, but also significantly contribute to consolidated EBITDA increase.
We are setting a new price target of CZK 585 per CEZ share as our DCF valuation of CZK 555 increased by the value of recent acquisitions in an amount of CZK 30 per share.
