The Czech Press Agency reports on the planned energy sector restructuring, based on a plan submitted by the ministries of industry and finance; their proposal should be submitted to the Cabinet by the end of February.
The plan calls for (i) CEZ selling a 66% stake in its 100%-owned subsidiary CEPS (which operates the transmission grid) to the state National Property Fund (NPF), and, subsequently, (ii) CEZ buying NPF-owned stakes in all eight regional distributors (REAS). The 66% CEPS stake would be sold to NPF for CZK 25 bil.–30 bil., and CEZ would pay in total CZK 50 bil.–60 bil. for the stakes in REAS. Therefore, CEZ would pay at most CZK 35 bil. above the CEPS selling price.
According to our valuations, this would be a fair deal; anything below this figure is added value for CEZ. CEZ should not have problems with financing the transaction, though the acquisition would likely have an impact on CEZ’s dividend policy. In addition, the payment for the distributors would not be required immediately; therefore, its present value is likely to be lower than the above mentioned figures. Most importantly, the acquisition would significantly help CEZ with domestic market share expansion (the whole scheme is likely to have originated in CEZ, and the company could to some extent already be prepared for implementation).
We believe the Cabinet will approve the proposal, but this may not be the case with the Anti-Monopoly Office; moreover, some of the opposition parties are against the restructuring of the sector, thus leaving room for reversal of the action after the general elections in June. Nevertheless, this seems to be a situation with significant upside and small downside; the stock should react positively.
Separately, the Temelin nuclear power plant’s first reactor has been halted for one month, as planned. Neutral.
(Jiri Soustruznik)