Patria issued a new report on CEZ yesterday. Our assessment of the short-term risks (opposition to Temelin, untested regulator, possible restrictions on electricity exports, increased import prospects) and strengths (i.e., strong future cash flow, dominant market position, productivity improvements) suggests that the discrepancy between the current market price and our new fundamental value estimate of CZK 140 per share is not justified. Although the current risk characteristics eliminate the stock’s defensive status, the potential for appreciation is huge when and once some of the obstacles are removed. Therefore, we reiterate our buy recommendation with a 12-month target price of CZK 140 per share.
(Ondřej Daťka)