The finance and industry ministries confirmed on Friday that the Anti-Monopoly Office (AMO) wants a new valuation to be performed for the regional power distributors to be acquired by CEZ, the state-owned power utility. CEZ is to acquire the stakes as part of government-proposed energy-sector restructuring. Ministry representatives should meet with the AMO to discuss the valuation in the coming days; Finance Minister B. Sobotka said he does not think another valuation is needed.
It is our understanding that the valuation is to aid the AMO in considering whether the transaction prices represent an effective state subsidy to CEZ. In any event, we still think the transaction will most likely be completed, and we reiterate our CEZ target price of CZK 120 per share. Nevertheless, the downside risk (CEZ overpaying for the distributors) increases, and the transaction completion risks, it must be said, becoming protracted. The stock lacks a catalyst at present, we downgraded our investment recommendation for CEZ stock from buy to accumulate on Friday.
Jiri Soustruznik