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Solid outlook as well as target share price. However, ČEZ will have to face challenges.

During the coronavirus pandemic, the energy giant ČEZ proved to be a stable company with a relatively optimistic period ahead of it. On the other hand, it will have to face some of the challenges associated with the European Commission's plan to reduce greenhouse gas emissions more and more stringently.

It was a relatively successful year for ČEZ Group, making it one of the few companies that can claim such a thing. Especially in a sector that is generally considered to be cyclical, as energy demand is strongly dependent on the course of the economic cycle.

However, ČEZ was able to increase both its operating revenues and operating profit last year, and last but not least, its net profit. In terms of revenues, it was also successful in the first quarter of this year, when the revenues increased by 4 percent to more than 59 billion Czech crowns. In this way, the company even managed to overcome the market consensus.

Operating and net profit fell relatively sharply between January and March this year, but mainly due to a high base effect. In the first quarter of last year, ČEZ reported high profits from hedging operations and trading. At the same time, a lower volume of free allocated emission allowances was reflected.

On the other hand, the energy giant managed to secure about 4 percent higher electricity prices, production from nuclear sources grew by 8 percent, and heat sales also increased by 9 percent thanks to the cold season.

For this year, ČEZ expects an operating profit (EBITDA) of around 57 to 60 billion Czech crowns and a net profit in the range of 17 to 20 billion Czech crowns. In both cases, these are slightly lower values than those achieved by ČEZ last year.

On the other hand, ČEZ plans to increase electricity production from nuclear sources. This can be considered a positive message, because nucleus provides the company with the highest margins. While this may have a double effect (in times of declining energy demand, this has a deterioration in economic performance), it is a positive effect at a time when economic recovery and growth in energy demand are expected.

From this point of view, setting the European Commission's goals in the area of reducing greenhouse gas emissions may not be bad news for ČEZ. In the last four years, the Group has managed to steadily reduce the emission intensity of the electricity produced, which last year reached 0.33 tonnes of carbon dioxide per megawatt-hour of electricity produced. This is a decrease of 17.5 percent compared to 2017. For this year, ČEZ estimates this intensity at 0.28 tons of CO2 per megawatt-hour, which represents a year-on-year decrease of another more than 15 percent.

Another opportunity in this context is the gradual development of electromobility, which the European Union also envisages. On the other hand, the high price of emission allowances, which has already exceeded EUR 53 per tonne, can be considered a risk. The price of allowances is thus 60 percent higher than at the beginning of this year.

ČEZ Group also has the advantage of its equity participation in the Cínovec lithium mining project. The current event is the signing of a memorandum between ČEZ and the Ministry of Industry and Trade, which sets out the basic parameters for the establishment of a factory for the production of battery cells for electric vehicles. The so-called Gigafactory is to be created, which is to reach a production capacity of up to 40 gigawatt-hours of battery cells.

ČEZ Group shares are currently traded on the Prague Stock Exchange at a price just below 600 Czech crowns. The median target price estimated by 19 analysts is 630 Czech crowns, average 623, minimum 438 and maximum 722 Czech crowns. Compared to the present, the median target price thus ensures growth of less than 6 percent.

A total of 11 out of 19 recommendations for ČEZ shares are positive, whether they are "buy", "outperform" or "accumulate". Seven analysts recommend holding the stock and only one advises to sell or reduce the stock.


Tomáš Kolomazník, BCM 

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The content of this material constitutes marketing communication and should not be considered as any type of investment advice and/or investment research and/or a solicitation for any transactions. This material was prepared for informational/educational purposes only and does not imply an obligation to perform investment transactions nor does it guarantee or predict future performance. BCM Begin Capital Markets Cy Ltd and its relevant persons including affiliates, agents, directors, or employees do not guarantee the accuracy, validity, timeliness, or completeness of any information/data provided by third parties and assume no liability for any loss arising from any investment made based on the said information/data. Past performance is no guarantee of future results.

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