KB stock may be in for a rough day today. Jiri Havel of the National Property Fund was reported as saying that the information memorandum, due in September, will not include specific information on KB guarantees — guarantees that the government has declared it is willing to provide to the future buyer of the state’s stake in the bank. Havel suggested that the government could take a specific decision on the guarantees only in the first week of October. This would be disappointing for the stock, since the market was expecting specific information on the government’s pre-privatization assistance fairly soon. By August 28, KB should have completed its special audit (KB says it is on schedule) and shall deliver the results to the government. The original plan was that, on the basis of the audit results, the government would decide on the size of its pre-privatization assistance and include this information in the information memorandum for investors, expected for release in mid-September. A Finance Ministry spokesman said yesterday that the ministry will make an official statement on the issue early next week, without elaborating further. The Prague HN business daily speculates that the information memorandum will contain only a vague government statement about the guarantees, and suggests that a specific commitment would only be made at an advanced stage in KB’s privatization.
As to the government guarantees (once they are specified), we do not expect much and, given this, we are less optimistic than the market. We consider KB stock to be vulnerable in the short term, mainly because the market’s expectations on the pre-privatization government assistance need not be met. Our short-term and long-term KB recommendations are hold and accumulate, respectively. We advise taking advantage of the stock’s volatility and accumulating it over time, our 12M target price is CZK 955 per share.